Basis: Heavy flow; Ceiling problems; JPY whopper

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With market participants citing a pre-Summer holiday rush, EUR/USD flows came in thick and fast in basis. JPM looks at the ceiling.

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  • Heavy flow in brisk, but functional, market

  • JPM: Front end EUR/USD best place to shelter from problem ceiling

  • Flow

  • New issues:


Heavy flow in brisk, but functional, market

With market participants citing a pre-Summer holiday rush, bolstered by a gap in the central bank rate announcement calendar that has seen a corpus diem attitude spread among bond issuers like wildfire this week, to the extent that issuance is already ahead of last week's $42bn equivalent and jumbo deals are appearing all over the place.


For example in JPY, the New York-based multi-channel investment firm Kohlberg Kravis Roberts & Co (KKR) has popped up with a seven-tranche, 5y up to 30y bond offering that is close to pricing and while the size is not yet known, it is expected to be ‘a lot.’  


Elsewhere, CADES has just its own pretty lumpy deal via a $3bn 5y USD offering. And even the sick currency of Europe, GBP, has had decent issuance from offshore borrowers in the last couple of sessions, including a £750m offering from ABN Amro that will push GBP issuance close to £2bn on what is only Day Two of this rare five day week for Brexit islanders.


But with a lot of deals seemingly pricing slightly later than normal today, one basis swapper said after lunch in London that, “It’s pretty liquid and the market’s coping well, but it’s not manic at the moment.”


It is not all about issuance though, ultralong ends are pretty lively too. But you are seeing in cable the 3y to 5y heading lower than the rest of the curve (by -0.5bps versus little-changed) on the back of two 5-years that priced late yesterday and (a £750m) 3y from ABN that is pricing around about now.”


The basis swapper said this led to good flow in 3y at -17 and -117.25bps earlier today, and in -19.25bps in 5y at -19.25bps and later at -19.875bps. The 10y sector was also busy at -19.875bps and -19.875bps, the source said “although there’s not any visible issuance there.”


And while there was a smattering of 25y and 30y flow today the basis swapper said that the bulk of long-end activity was in EUR/USD basis where there was a lot of 30y and 40y flow which “looks more like CVA than, say curve trades.” The trader said that all key issuance points from 15y down to 3y have been trading in EUR/USD, with the deals to numerous to necessarily link to the flows. Though a better offered tone across JPY/USD since late morning was “perhaps down to KKR (and its JPY mega-deal) but it’s not 100% clear to me that it will be swapped.”


Summarizing the new issuance boom this week the basis swapper said "this feels like the storm before the calm (of Summer holidays), although the calm could be a long way off so it will be interesting to see hows long it can keep it up."

JPM: Front end EUR/USD best place to shelter from problem ceiling

Strategists at JPM in their latest look at cross-currency basis have recommended people “keep receiving 1Yx1Y €STR/SOFR cross currency basis (as it also recommended 2Q23 cross currency outlook publication)” as the crunch time for the traditional US funding crisis in Congress edges closer.


It said that “increasing risk aversion around the deadline should put widening pressure (on the front end of EUR/USD basis)… which is only partially balanced by money market funds potentially deploying funds to the FX forward market. Going into the x-date when US Treasury running out of cash, which we estimate to be around the 9th of June risks around this will remain high and keep pressure on the basis markets.”


JPM adds that “while an eventual resolution of the debt ceiling would push basis narrower (less negative), we believe that any retracement would be limited. This reflects our view that post raising of the debt ceiling, the Treasury will be replenishing its balance sheet and issuing T-bills. The crowding out effect of money market funds who use their funds to buy bills leads to widening of cross currency basis is well established and will likely re-assert itself this time around as well.”


Finally, it concludes, “our expected relative disinversion of the SOFR curve versus €STR is also supportive of some medium-term widening bias on the basis. 



Basis trades on the SDR can be seen here: Total Derivatives SDR.


New issues

USD new issues:

  • CADES has priced a $3bn 5y Social at swaps +45bps. Leads are BNPP, Goldman, NatWest and SocGen. Aa2/AA. Books above $5bn .


  • Kommunekredit plans a $1bn 5y at around swaps +47bps. Leads are BMO, Daiwa, DB, RBC and SEB.


  • CoE Development Bank plans a USD 3y Social Global.  Leads are CA, MS, NatWest and Nomura. Swaps +24bps.


  • Japan International Cooperation Agency (JICA) plans a $1bn (min) 5y Sustainable at swaps +76bps. Leads are Barclays, Citi, Daiwa and MS. A+


  • Tokyo plans a USD 3y to 5y through Barclays, Goldman, Citi and MS. 


  • Poland’s BGK yesterday priced a $1.5bn 10y government-guaranteed bond. Leads are BNPP, Citi, ING, JPM and Santander. A2/A-. +190bps.


  • Toyota Motor Credit yesterday priced a $2bn 3-part ($1bn 3y, $300m 3y FRN, and $700m 7y). Leads are CA, JPM, MS, SocGen and TD. A1/A+/A+. +80bps, SOFR +89bps and +110bps.


  • Westpac yesterday priced a $1.75bn 5y Covered Bond. Leads are HSBC, Lloyds, RBC, TorDom and Westpac. Aa3/AA-/A+. Swaps +92bps.



EUR new issues:

  • Johnson Controls, a US company, has priced an €800m Green at swaps +135bps through Barclays, Citi (B&D), DB and Standard Chartered.

  • Prologis Inc, a US company, has priced a €750m 10y at swaps +170bps through BNPP, CA, ING (B&D) and JPM.


  • HSBC has priced a €1.75bn 10yNC9 at swaps +190bps through HSBC, CIBC, ING, Natixis, Santander and SEB.


  • KDB, Korean Development Bank, has priced a €750m 5y deal at swaps +43bps through BNPP, CA, HSBC (B&D), JPM, KDB and Natixis.


  • Australia Pacific Airport has issued via BNPP, Citigroup and GS €500m in 4.375% May 24, 2033 with single call at par in February 2033.


GBP new issues:

  • ABN Amro has just priced a £750m 3y Green Senior Preferred bond at gilts ++160bps via itself, Goldman, HSBC and Lloyds.


  • Caisse des Depots et Consignations has priced a £325m 2.25y GBP bond at gilts +76bps via HSBC, NatWest and RBC.


  • Swedbank yesterday priced a £400m, 6y NC5 Green SNP at gilts +230bps via HSBC, NatWest and Nomura (B&D).


  • BPCE yesterday priced a £400m, 6y NC5 SNP at gilts +240bps via Lloyds (B&D), Natixis, NatWest and RBC.


  • VW Financial Services yesterday priced a £300m, 6y bond at gilts +205bps via Lloyds and NatWest (B&D).


JPY new issues:

  • US-based Kohlberg Kravis Roberts & Co has launched a multi-tranche JPY-denominated 144R/Reg S deal with the following price guidance over mid-swaps: Consisting of 5-year at +115-120bps, 7-year at +120-125bps, 10-year at +135-140bps, 12-year at +145-150bps, 15-year at +150-155bps, 20-year at +160-165bps and 30-year at +180-175bps.