Basis: 40y flows stand out; EDF; Guns, regionals and holidays

French nuclear power
A welcome European holiday capped new issuance-related flows today. Cross-currency basis traders eyed strong 40y bids, and Congress.

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  • 40y trades stand out; Guns, regionals and holidays

  • Flows

  • New issues 


40y trades stand out; Guns, regionals and holidays

A holiday in parts of Europe today brought a sharp slowdown in new issuance and basis swap activity that, more unusually than one might think, was unconditionally welcomed by a trader in London this morning.


One seasoned swapper at an active market participant said that Ascension Day has closed a lot of places down. "Many people in those parts will be looking to take Friday off too, especially in the absence of any US data tomorrow, which is good,” he added.


Good because… “once the instability in the share prices of a number of US banks that nobody has heard of or cares about settled down, a couple of weeks ago, it led to an exceptional burst of issues from borrowers worried about the next such wobble and also very keen to get their issuance done so they can put their feet up for the Summer.”


So two calm days before another short two-day weekend in the UK is particularly welcome after an exhausting time in the market. Summing up recent activity the trader noted that “in the belly of the curve there has been a lot between 5y and 10y in both EUR and USD issuance, so they have cancelled each other out somewhat, despite a lot of (basis) flow.”


More interesting, he reckoned, has been the 40y sector of EUR/USD. He said that “until a couple of days ago there was someone who was paying 40y EUR/USD, taking 30s/40s EUR/USD up to a high of +8bps on Tuesday and steepening 10s/30s, as well as 30s/40s.”


“There are a couple of theories,” he explained. “It could be a CSA – and I think it is just one name – undergoing a realignment that involves taking on fresh gamma exposure in the ultralong end. But it’s worth noting that EDF announced a large multi-tranche USD deal last week, and when it previously had such a bond sale, last year, it did quite a lot of 40y.”  


“It could have been someone gambling that lightening would strike twice because since it confirmed its ($3bn, 5y, 10y and 30y) deal, the 30s/40s has slipped back from +8bps to +6bps.” That said, he noted the cable curve moved in the opposite direction to EUR/USD during this time which might again support the idea of CSA tweaking, or indeed of both factors influencing 40y bases at the same time.


Flows today are obviously light, except in 5y EUR/USD, which saw -29.25bps trade “a lot,” according to the swapper, while 3y was active at -30.125bps and in GBP/EUR, the 4y basis traded at 12.125bps this morning and was bid on from there.


Looking ahead, the above trader said that the most significant unexploded item in the global news minefield right now is the risk of US debt default. As leading members of Congress try to work out a deal, the basis swapper said “nothing is expected this week, which is good. But after this week you will hear the optimists say that ‘the consequences of a US debt default would be so destructive it just won’t be allowed to happen and all will be OK.’”  


On the other hand, he said… “pessimists like myself are thinking ‘US politicians nowadays can’t agree on what to have for breakfast, so I don’t see them capable of negotiating a functioning agreement on the debt crisis. It would take a gun to their heads to make them see sense,” which is a risk that might soon play out quite sharply in the front-end of the EUR/USD basis curve.”



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


New issues

USD new issues:

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


  • Korea Credit Guarantee Fund (Aa2/AA) is preparing a USD 3y Social in the region of Treasuries +155bps. Via BNPP. 


  • EDF last night priced a $3bn 3-part ($1bn 5y, $1bn 10y and $1bn 30y). Leads are BofA, CA-CIB, BNPP, DB, JPM, MIZ, MS, MUFG, SocGen, Santander, StanChart and WFS.  Baa1/BBB/BBB+. +215bps, +270bps, +310bps.


  • Kommunekredit yesterday priced a $1bn 5y. Leads are BMO, Daiwa, DB, RBC and SEB. Aaa/AAA. SOFR MS +44bps.


  • Hungary’s OTP Bank (Baa3/BBB-) yesterday priced a $500m 4y NC3 bond. Leads are BNPP, JPM, MS (B&D), OTP and SocGen. 7.5%.  


  • Germany’s NRW Bank priced a $1bn 3y. Leads are BofA, Citi, Nomura and RBC. Aa1/AA/AAA. SOFR MS +32bps.


EUR new issues:

  • Fiserv Inc, a US electronic company yesterday priced €800m of 8y at swaps +160bps through Citi (B&D), MUFG and WFC.

  • Jyske Realkredit yesterday priced €750m of 7y Covered at swaps +30bps through Commerzbank, Danske, DZ, ING and Jyske.

  • Kexim, Export Import Bank of Korea, plans EUR 3y, 5y or 7y after investor meetings on 22 May through Citi, CA, HSBC, IN, JPM and SocGen.


CHF new issues:

  • BPCE yesterday priced a CHF 480m two tranche bond consisting of CHF 245m of 3y bonds at SARON ++68bps and CHF 235m of 7y at SARON +90bps.


  • Municipality Finance yesterday priced a CHF 150m, 5y bond at SARON -16bps via BNPP.


  • Muenchener Hypo yesterday priced a CHF 115m, 10y Green Bond at SARON +240bps via UBS and ZKB.


JPY new issues:

  • KKR Group last night issued JPY61.5bn worth of 144A/Reg S bonds as follows; JPY44.7bn, 1.428%, May 25, 2028 at mid-swaps + 120bps, JPY1.8bn, 1.614%, May 24, 2030 at mid-swaps + 125bps, JPY1.5bn, 1.939%, May 25, 2033 at mid-swaps + 140bps, JPY3bn, 2.312%, May 25, 2038 at mid-swaps + 155bps, JPY4.5bn, 2.574%, May 22, 2043 at mid-swaps + 165bps and JPY6bn, 2.747%, May 23, 2053 at mid-swaps + 175bps. Leads were BofA, KKR Capital Markets, Mizuho, Morgan Stanley and SMBC Nikko.