Basis Swaps: XVA flows in normalised market

Cables coiled
Both ends of the cable basis curve continued to head higher this week as cross-border issuance remains light and XVA flows return.

Start a free trial to read this article

Join today to access all  Total Derivatives content and breaking news. Already a subscriber? Please Log In to continue reading.

Or contact our Sales Team to discuss subscription options.

Get in Touch
Blurred image of Total Derivatives article content


  • XVA flows in normalised market

  • Skipton’s GBP FRN taps into tight GBP spreads, not EUR

  • Flow

  • New issues:


XVA flows in normalised market

Basis swappers managed to find some things to do today despite an ongoing shortage of cross-border new issuance in this week of big data and central bank news. In the UK at least.


With last week seeing the ECB and FOMC meetings obviously slowing the wheels of cross-border supply to an even greater extent, the space was created for moves in cable basis to stand out from the crowd.


Basis swappers late last week noted that a long-term decline in the long-end of cable basis appeared to have halted. This was attributed to a change of mood among asset managers in regard to buying long-dated gilts, which they had been eschewing to some degree since the Autumn Truss debacle (see Basis: Is this the end of the Truss 30y cable collapse?).


30y cable bottomed out at -42bps on June 6 and was below -40bps early last week, since when it has painstakingly ground its way up to -38bps at the time of writing, a move that includes a +0.75bps nudge higher today.


According to one basis swapper today, “the offer tone to the long end of cable hasn’t come back, the main driver seems to have gone back to XVA flows. There’s been another patch of ultralong volatility in long gilts (30y has traded in a 20bps range over the last five days and rallied 15bps today alone) and that’s triggered some hedging flow, today anyway.”


The 30y part of the cable curve has been particularly active with the above trader reporting outright 30y flow a number of times at -37.5bps and again at -38.125bps, although the latter level was part of a 20y30y trade at a spread of -6.625bps. The -37.5bps was a high point today for the 30y cable basis before falling back to -38bps at the close.


And after getting a boost last week from the slightly hawkish FOMC, the front end hasn’t looked back, with 3m pushing 7bps higher over the last week to -6bps today, which means that despite the slow-motion rebound in 20-30y cable, 3m30y has flattened 3bps since June 13.    


In terms of new issuance flows the above trader was at a loss to highlight any obvious ones today. The swapper said “there’s been a fair bit of 10y (EUR/USD) at -29bps and -29.125bps but it’s hard to put it on any deal that’s out there. It’s been quite patchy flow-wise, but we’ve had a busy period so a couple of quiet weeks is fair enough… I’d expect issuance to pick up soon.”    


At the end of play today the impressively consistent EUR/USD basis curve was -0.5bps in 3m, 5y and 10y points, and -0.625bps in  the 30y.



Skipton’s GBP FRN taps into tight GBP spreads, not EUR

The GBP FRN market has had a lively time of late, particularly in terms of issuance from Canadian and UK banks. After recent such issues from Yorkshire Building Society, Lloyds and Nationwide, the Skipton Building Society started this week’s GBP bond issuance briskly with a £500m, 5y Covered FRN at SONIA +52bps which was done and dusted by lunchtime on Monday.   


The deal comes at a time when dark clouds are reported to be gathering around the UK housing and mortgage markets. A senior treasury official at the building society said today that while aware of the newspaper stories about 6% mortgage rates and housing market stress, it hasn’t affected its borrowing plans.


“Today’s deal is part of our general issuance plans, and we had a £400m FRN mature in May. It doesn’t reflect any particular view on rates and it is very much part of an annual issuance plan that we set out in January,” said the official.


He said the robust demand was supported by “UK bank treasuries who like this asset class. There is a noticeable lack of interest from asset managers at the moment though, the spreads in GBP covered bonds are tighter than those for UK institutions issuing in EUR and swapping back to GBP.”


Unsurprisingly he said that Skipton’s EUR issuance is swapped back to floating-rate GBP, and FRNs such as Monday’s £500m deal stay unswapped. Current conditions then, it seems, favour GBP issuance from classic UK covered bond sellers, to the detriment of basis swap activity.  


In its deal summary, lead manager Lloyds said that “In line with recent GBP covered deals, the significant majority of allocated orders came from UK bank treasuries and, overall, the deal marked a success for Skipton who were able to print their desired size at a level consistent with recent 5y GBP covered trades.”



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


New issues


USD new issues:

  • Barclays is preparing a $1.5bn 11y NC10 sub at around Treasuries +340bps. Self-led.


  • Export Development Canada plans a USD 3y Global at around swaps +26bs. Leads are BofA, Citi, CA, Daiwa and Scotia.


  • NongHyup Bank plans a 5y USD Social bond via BNPP, BofA, Credit Agricole, MUFG, SocGen and UBS.


EUR new issues:

  • Nasdaq plans EUR long 8y and USD 4y to 40y bonds to fund its acquisition of Adenza. Leads are BofA, Citi, GS, JPM, MS, Nordea and SEB. 


  • Bank of New Zealand has priced a €750m 5.5y Covered at swaps +53bps through Barclays, BNPP, DB, NAB and UBS.


CHF new issues:

  • Santander Consumer Finance today priced a CHF 265m, 2y bond at SARON +67bps and a CHF 130m 5y bond at SARON ++95bps via UBS.


JPY new issues:

  • DZ Bank has priced a JPY 3.2bn, Jun 2028, 0.9% bond. Self-led.


  • Korean Air Lines Co Ltd is planning a 3-year Samurai bond at 65-70bps over mid-swaps. Leads are BNP Paribas, Daiwa and Mizuho and the deal will be guaranteed by KEXIM.