Basis: Ticking over; KfW ahead of the curve

Dollar USD bills 14 Jun 2022
It has been a calm session, and week, so far in cross-currency basis as cross-border issuance slowly gains momentum.

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  • Ticking over as USD issuance surges ahead

  • KfW ahead of the curve

  • Flow

  • New issues:


Ticking over as USD issuance surges ahead

It has been a calm session, and week, so far in cross-currency basis swaps as cross-border new issuance takes a while to really build momentum despite a decent showing in USD so far. The standout deals today are emanating from issuers in USD, led by KfW, which is close to pricing a 10y Global, and JBIC in 5y, while TorDom priced a $3.5bn 3y and 5y offering late yesterday and Rabo plans USD 2y fixed and floating rate bonds.


KfW is known to be a regular swapper back to EUR (see Basis: Calendars, windows and mysteries) and one trader at an active market participant said this lunchtime in London that “there’s been a pretty steady flow in 10y EUR/USD since this morning.” The basis swapper said it had traded numerous times between -28.375bps early this morning, and more recently at -28.625bps.


Since yesterday lunchtime the 10y basis has been bid up from -29.5bps to -28.25bps towards the end of this morning, and is receding now to be last quoted at -28.875bps. €STR-BOR 10y was offered down yesterday and is a touch lower at 13.2bps (-0.1) today.


Of the other big USD issuers, JBIC operates as Japan’s export-import bank so a swap to JPY is unlikely. TD Bank priced its $1.8bn 3y fixed, $450m 3y FRN and $1.25bn 5y fixed-rated bond a little after the London close yesterday but the above basis swapper said there were 3y and 5y CORRA/SOFR flows just prior to the close at -13.25bps and -10.5bps respectively that might suggest the lumpy offering was at least part-swapped.


Otherwise, despite the efforts of the above-mentioned SSA and FIG issuers to continue to get things done before the expected Summer slowdown begins in earnest, the above swapper said “between the big deals you feel things are thinning out a bit.”  


In London, concluded the basis swapper “it feels there are quite a few people out of the office today (which happens to be Wimbledon quarter final day). I don’t know why that would be but the market does feel a tiny bit quiet!”  


GBP issuance has been resting after one of its characteristic bursts of activity last week, but it woke up again today with a 7y IADB bond launch which traders say has triggered 7y cable flow at -22.25bps a few times and at -22.5bps so far today. Moves on the cable basis curve  though are very limited.


In EUR/USD, the slight recent tilt to USD issuance over EUR sees the curve well supported. The front-end is +0.625bps at -14bps today while the rest of the curve is typically +0-375bps as it moves evenly higher. Ahead, US banks start to leave earnings season blackout from Friday onwards. 



KfW ahead of the curve

KfW said today that it has already raised the equivalent of around €54bn in H1 2023 (previous year: €57bn) on the global capital markets, meaning it has already achieved 63% of the funding volume planned for 2023 as a whole.


"The market environment continues to be challenging due to the high degree of volatility. Nevertheless, in the first half of the year we took advantage of market opportunities, which is to say we responded to investor demand in the best possible way while ensuring optimal funding. We have achieved our targets for the first half of the year," declared Treasurer Tim Armbruster.


KfW’s funding is implemented on a global level, and thanks to the German federal guarantee the bank can offer institutional investors around the world “German credit risk in a wide range of currencies,” added Armbruster. "By adopting a very flexible approach to responding to market opportunities, it also takes advantage of attractive funding conditions."


Overall, KfW issued bonds in seven different currencies in the first half of the year; the euro portion of the total funding volume is 65% (previous year: 58%), while that of the US dollar is 21% (previous year: 24%). The British pound has a share of 7% (previous year: 10%), while the Australian dollar made a relatively substantial contribution at 6% (previous year: 2%). With remaining funding needs of around €31bn for 2023, depending on how the markets evolve, KfW plans to "keep focusing on the US dollar as a strategically important currency (in addition to the euro)" in the second half of the year. Indeed, its USD issuance share is due to increase slightly any minute as KfW prepares to price a $4bn 10y Global.



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


New issues


USD new issues:

  • KfW is on the brink of pricing a $4bn 10y Global. Leads BMO, BNPP and Citi. Aaa/AAA/AAA. Swaps +45bps.


  • JBIC is close to pricing a $1.5bn 5y Global. Leads Barclays (B&D), BofA, Goldman and Daiwa. A1/A+. Spread set at swaps +69bps.  


  • Korea Hydro & Nuclear Power plans Green 5y bond led by BofA, Citi, Credit Agricole, SocGen and Standard Chartered. Price talk USTs +120bps.


  • Cooperatieve Rabobank NY plans a 2y fixed bond at +87bps or so, plus a 2y FRN at an equivalent yield. Via BofA, JPM, MS, Rabo and TorDom.


  • Hanwha Q Cells Americas plans a $TBA 5y Green Bond after investor meetings arranged by BofA, Citigroup, Credit Ag and Korea Development Bank starting on July 12.  


  • TD Bank last night priced a $3.5bn 3-part ($1.8bn 3y fixed, $450m 3y FRN and $1.25bn 5y). Leads are Citi, GS, NatWest, StanChart and TD Sec. A1/A/AA-.  +98bps, SOFR +108bps and +128bps.


GBP new issues:

  • The IADB is close to pricing a £400m, 7y Sustainability Bond issue at gilts +40bps via BNPP, BofA, HSBC and NatWest.  


  • BMO yesterday priced a £390m, Jul 2024, SONIA +50bps FRN at par via itself.