Basis: Smith keeps low profile; Flow thinning

Rusty pipe leak 10 Jun 2021
Cross-currency swap curves flattened on a day of light issuance and frequent, but small size, basis flow.

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  • Smith keeps low profile

  • Flows

  • New issues:


Smith keeps low profile

A day of light cross-market bond issuance has so far made little impression on core basis markets, where the main trends in both cable and EUR/USD were gentle curve flattening and a dearth of large-size flows despite a smattering of small trades.


The most eye-catching deal so far today came from UK-domiciled but internationally dispersed consumer packaging company DS Smith. One longstanding swapper at an active market participant said this lunchtime in London that despite appearances, it may not trouble the basis market.


The company is close to pricing a €1.5bn Green bond in 4y and 7y, but despite flows in 4y and 7y cable today at -19.125bps and -21bps, one trader said the small size of that flow, combined with a lack of corresponding EUR/USD trades, told its own story.


“My understanding is that they are using most or all this deal to pay off existing EUR debt, so I don’t think it’s going to be swapped elsewhere, not all of it anyway” he said.


Generally, said the swapper, flow is “bitty” as they used to say many years ago on TV’s Little Britain. A 25bps rally by 10y gilts between Tuesday morning and Wednesday lunchtime, inspired by below-forecast inflation data and matched by moves elsewhere on the curve, spawned small pockets of gamma hedging in basis from CVA types, said the above trader.


This was expressed in longer-dated cable flows, including in 20y cable at -31bps, this morning while light flows in 30y EUR/USD at -20.5bps and -20.75bps this morning were “probably CVA-type flows too.” Also, amid the growing Summer issuance dearth traders said the usual cable versus EUR/USD arbitrage trades were becoming more visible, but haven’t included any standout trades so far today.


The trader said that the biggest impact from new issuance in the last 24 hours or so came from the €1.5bn RBC Covered Bond that priced Tuesday but saw that part of the EUR/USD curve offered yesterday as the 5y basis traded down to lows of -28.25bps, before rebounding to its current -27.125bps.  


Meanwhile, GBP issuance continues to keep the scoreboard ticking over at a sedate, but consistent, pace. Tuesday saw the IFC’s 3y, £300m offering drag the front end a bit lower, and has been followed today by a relatively rare GBP offering from the African Development Bank, which has just priced a 2y £300m deal. The above basis swapper said “they would be expected to go to USD but I haven’t seen any flow from it myself… it’s reasonably small-sized.”


The 2y cable basis was last -0.25bps at -14.5bps during a session in which curves have gently flattened. In cable 3m is -0.125bps while 30y is -0.625bps versus yesterday’s close. In EUR/USD a similar pattern was seen with the 3m basis -0.25bps and 30y -1bp.  



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


New issues


USD new issues:

  • Manitoba plans a USD 10y bond at swaps +74bps via CIBC, NBC, RBC and TorDom (B&D).


  • Korea Electric Power Corp is preparing USD 3y and/or 5y Sustainability bonds via BofA, Citi, JPM, Mizuho and UBS.


EUR new issues:

  • UK-based consumer packaging company DS Smith plans a €850m 4y and €650m 7y bonds at around swaps +108 and 145bps. Leads are Citi, ING (B&D) and NatWest.


  • American Honda Finance yesterday priced a  €750m, 4.25y bond at swaps +60bps via ANZ, Deutsche, Barclays and JPM.


GBP new issues:

  • African Development Bank has priced a £300m, 2y bond issue at gilts +65bps. Via NatWest, RBC (B&D) and TorDom.


  • National Bank of Canada this week sold a £100m 1y FRN due Jul 2024 at SONIA +50bps via Credit Agricole. The latest deal takes total issuance of sterling 1y FRNs this month up to £2.5bn across 10 issues.


  • IFC on Tuesday priced a £600m, 5.5% 3y bond at gilts +64bps via Barclays, Citi and TorDom (B&D).


CNY new issues:

  • Korea Development Bank last night priced a CNY 350m, July 31, 2026 3% at par via HSBC. It promptly followed that with a CNY 181m, July 26, 2026 offering, also at 3% and also priced at par. Via Mizuho.