Basis: Signs of stress flicker; CHF on a roll

Swiss Roll 12 Jan 2022
With the US debt ceiling deadline approaching, short basis is ticking like a timebomb. And DNB discusses its CHF debut.

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  • Signs of stress flare in 3m EUR/USD

  • CHF provides DNB with new option in choppy markets

  • Flow

  • New issues


Signs of stress flare in 3m EUR/USD

With mixed messages regarding the chances of a US debt ceiling agreement coming from the key players in Washington at the moment, the front-end of the EUR/USD basis swaps curve has assumed it’s traditional role as that market’s lightening rod for macro anxieties.


This morning the 3m EUR/USD basis fell as much as 3.5bps to -24bps as traders fretted about the recurring nightmare that is the possibility of US default. One basis swapper said that “it isn’t exactly headline trading, but more calendar trading, as whatever the progress is said to be at any given time, the one certainty is that until a deal is made, the clock is ticking.”


But the arrival of New York trading seemed to bring a little confidence back to basis, and the first break was last -1.5bps at -22bps as sceptical strategists found their pessimistic views at odds with attempts in Washington to offer upbeat predictions of a deal by June 1 (the date at which the US government may run out of the money necessary to pay its bills).


The above swapper said that the looming holiday on Monday may see some untypical Friday twitchiness tomorrow as London traders would see only two working days between them and the abyss.


Indeed Bloomberg reports today that the main clearing houses (including the CME, Eurex and the LCH) are developing strategies for a possible default, with options including possibly adjusting haircuts and margins on Treasuries with a view to reducing there exposure to USTs if the worst were to happen.


Elsewhere, in a day of moderate issuance, the above trader reported 5y cable flow at -21.625bps to -22bps this afternoon, while 5y CAD/USD traded at -5.25bps and -5.5bps which, he said, may or may not be related to a 4.25y GBP bond issue from BMO today.



CHF provides DNB with new option in choppy markets

The last few weeks have seen the two biggest issuance currencies go through a few mini boom and bust cycles as markets open quickly and close even faster depending on how much market volatility is being generated by headlines on any given day.


Among the few beneficiaries, in currency terms, of this up-and-down market is the CHF bond market, which typically (for example taking 2022 issuance numbers) is about half the size of the GBP bond market.


CHF has had a steady run of issuance in late, which on the sell-side is driven by eager banks keen to get a slice of the pie that was leftover when Credit Suisse (which previously arranged about 30% of all CHF deals) was consumed by UBS, while issuers are keen to hedge their bets in this eras of permanent crisis/volatility.


Today has seen a good Swissie showing once more in cross-market issuance, with more than CHF 3090m of bonds sold in the last 24 hours via deals from Norway’s DNB Bank and German energy company EnBW.


A senior official at DNB’s head office in Oslo told Total Derivatives today that CHF offers it a fresh option during a time where nimbleness is to be valued. “this is a diversification of our funding,” he said.


“We’ve done a variety of Senior Non-Preferred bonds in USD, EUR, JPY, GBP and the Nordic currencies, but this is our first in CHF.”


Expanding on today’s CHF 140m 5y NC4 Green Bond SNP issue, the senior Treasury official said that “it came in response to investors interest and was a welcome diversification for us. The broader market is occasionally fragile at the moment so it is good to take new opportunities and in terms of funding costs, nothing is very cheap at the moment but this came at exactly the same all-in cost as a recent JPY SNP deal recently, so it is very satisfactory.”   


The cost both cases in calculated after a basis swap to EUR, where the exposures arising from the two recent issues will rest ahead of a swap to NOK at some amenable future point, said the official.



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


New issues


USD new issues:

  • KEXIM plans a USD and/or EUR bond issue consisting of a 3y, 5y or 7y EUR Green Bond and/or a 10y USD bond via Citi, Credit Agricole, HSBC, ING, JPM and SocGen.


  • KfW yesterday priced a $4bn, Jun 2028, 3.875% Global at swaps +34bps via BMO, Citi and Goldman.


EUR new issues:

  • Vodafone plc yesterday priced two hybrids: a £500m 63.25y NC8.25 at 8.125% and a €750m 61.25y NC6.25 at 6.625%. Leads are BNPP, BofA (B&D), GS, MUFG, NatWest and RBC with books of £1.1bn and €1.8bn.


GBP new issues:

  • Bank of Montreal has priced a £450m, 4.25y, Sep 2027, Covered FRN at SONIA +65bps via BMO (B&D), Barclays, HSBC, NatWest and Santander. Books currently £940m+.


  • US insurer Equitable Financial Life is close to pricing a £300m 5y 6.375% FA bond at gilts +210bps via Barclays, Deutsche (B&D) and HSBC.  


  • BayernLB yesterday priced a £250m 3y Covered bond 5.125% due Jun 2026 to give gilts +90bps. Leads are BayernLB and NatWest (B&D).


CHF new issues:

  • Norway’s DNB Bank has priced a CHF 140m, 5yNMC4 Green Bond at around swaps +83bps via Deutsche.


  • EnBW International Finance yesterday priced a CHF 165m, June 2026 bond at SARON +43bps and a CHF 245m 6-year bond at SARON +68bps via BNPP and Commerz.


AUD new issues:

  • Mercedes Benz Australia has priced a AUD 165m, 4.65%, June 2026 bond via CBA, TorDom and Westpac.