Basis: Market calm but conscious; MuniFin happy in GBP

Ten pound notes 20 Nov 2020
US CPI data gave government bonds a small fillip and allowed core basis markets to push upwards. MuniFin is happy in GBP.

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  • Basis calm, but not unconscious

  • Happy MuniFin glad to get back to GBP

  • Flow

  • New issues:


Basis calm, but not unconscious

Today’s keenly-anticipated US CPI data came in on target in the monthly and the ex-food and energy categories, and 0.1bps below forecast in the quarterly headline number (3.2% versus expected 3.3%). This drew a speedy 6bps dip by 10y yields before they settled little-changed at 4.00%. In the 2y a bit of wobbling ended with the yield finding peace at around 4.77%.


All well-and-good one may say, but what did it do for EUR/USD basis? Not very much. Traders said today there seemed to be a higher-than-usual level of confidence that the cooling CPI number would come in pretty close to target and the first break pushed gently higher all day, continuing after the release to reach -11.25bps late in the London trading day, up a respectable bp from 24 hours ago.


As for more basis-specific events today…. well the only mildly-interesting trend this week has been a decent showing by GBP issuance amid a barren spell for EUR and a week of few, but fairly lumpy, USD deals.


As explained by a senior source at Finland’s MuniFin (see next section), GBP has offered pockets of opportunity thanks to ASW and gilt volatility, while the petrol heads at Mercedes-Benz also popped up with a GBP offering (£350m 3y), which paid a 5.5% coupon versus the 1.625% on its last GBP deal, a 5y offering in 2019.


Clearly Mercedes was happy to engage in both of those transactions, offering a clear reminder of the magical power of derivatives generally and basis swaps in particular when it comes to functioning in wide-ranging market levels.


The cable curve sagged in the belly today as front and back ends pushed 0.25bps less negative and the 5y to 10y stretch of the curve fell 0.125bps.


Basis swappers noted that while the cats were away (although there was semi-decent 10y15y EUR/USD flow at -1.25bps and some fairly small-sized interest between 20y and 30y), some mice were spotted playing in the form of short-dated CAD/USD flow (2y at -14.25bps was typical) and CHF/USD flows in and around the 5y area, which traded a bit at -51.5bps.


Nationwide Building Society, which unsurprisingly funds in GBP, sold a 4yNC3, CHF 175m bond at SARON +120bps via Deutsche and UBS. And Canada’s CIBC popped up with a $500m, 3y FRN last night.



Happy MuniFin glad to get back to GBP

One market that pretty much ignored the August Summer doldrums that have so decimated EUR-denominated issuance in particular in recent sessions was sterling. This week has already seen issues from BNPP (£750m 5y), Caterpillar Finance (£500m 3y), Mercedes-Benz (£350m 3y) and Finland’s MuniFin.


Speaking today of Tuesday’s £250m, 5.125%, July 2027 bond, which came at gilts +60bps via Barclays, BofA and Citi, MuniFin’s funding analyst Aaro Koski said this afternoon that the sterling deal was the result of some patient monitoring of moves in the GBP swap spreads. He said that “sterling has been a very important market for us for some time but recently the levels just haven’t quite come together.”


But not only did they come together this week, but they also allowed MuniFin to nudge a little further up the curve. “Our existing curve had begun to look a bit short, so it was good to be able to extend it further with this 4-year deal. It went very well, received a strong order book and we were very happy with the transaction.”


MuniFin, noted Koski, swaps to EUR and he said the combination of demand driven by higher GBP yields at the moment (5-year gilt yields, for example, are 185bps above Bund yields at the time of writing), GBP ASW spreads that offered enough pick-up for the investors, and sufficient basis swap spreads created a nice window for the GBP offering. “This is our first sterling benchmark of the year, and historically we have been tapping our GBP bonds when opportunities arise,” he added.





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




New issues


USD new issues:

  • CIBC last night priced a $500m, 3y, SOFR +72bps private placement at par. Self-led.


  • ANZ NZ on Monday evening priced a $1bn benchmark 5y bond. Leads ANZ, Citi, HSBC and JPM. A1/AA-/A+. +120bps.


  • HSBC Holdings on Monday priced a $2.4bn, 4yNC3, fixed-to-floating TLAC bond at +145bps. It also priced a $700m of 3y TLAC SOFR +157bps FRN at par via sole manager HSBC.


  • BNP Paribas on Monday priced a $1.5bn Perpetual NC5 AT1 at 8.5%. Self-led. Ba1/BBB-/BBB.>


  • Agri Bank of China on Monday priced a $200m, 2y, SOFR +50bps FRN at par via ABC, BofC and CCBA.


  • New Development Bank (BRICS) on Monday priced a $125m, SOFR +90bps FRN via ICBC and Shanghai Pudong.


GBP new issues:

  • BNP Paribas yesterday priced a 6% £750m, self-led. 2028, variable-rate-bond at gilts +155bps. Self-led.


  • Caterpillar Financial last night priced a £500m, Aug 2026, 5.72% bond at gilts +97bps via Barclays.


  • Munifin on Tuesday sold a £250m short 4y 5.125% due Jul 2027 at gilts +60bps. Leads are Barclays, BofA and Citi (B&D).  


  • Mercedes-Benz Int’l BV on Tuesday priced a £350m 3y bond issue at gilts +93bps or so via Barclays (B&D), Goldman and RBC.


  • NBC on Tuesday sold another £127m 1y FRN due Aug 2024 paying SONIA +48bps. Lead is Commerzbank.  Issuance of similar notes in July from a variety of names totalled around £3bn.


AUD new issues:

  • National Bank of Canada has priced an AUD 40m, Aug 2038 zero percent bonds at par via RBC.


CHF new issues:

  • Nationwide Building Society today priced a CHF 175m, 4y, 2.97% bond at SARON +120bps via Deutsche and UBS.


  • Lloyds Bank on Tuesday priced a CHF 440m, 4y Covered Bond issue via Deutsche  and UBS at SARON +17bps.