Basis Swaps: ECB strikes! Front-ends dominate

Shorts 6 DEc 2021
As the ECB launches a surprise dovish strike, low issuance levels see short-end basis in focus.

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  • ECB strikes! Front-end dominates

  • Flow

  • New issues



ECB strikes! Front-end dominates

Yesterday saw both the 1y to 5y sectors of both the EUR/USD and cable basis curves bid as the market repriced slightly ahead of the US CPI. Market sources said today that both markets then went offered after the CPI release, and today so far has followed a similarly pattern.


The 2y EUR/USD basis (for example) started yesterday at -24.5bps, and after rallying and falling back opened today at -23.875bps, peaked this morning at -23bps, and has fallen back to -23.75bps. In 2y cable the moves have been vaguely similar, it rising from -12.875bps yesterday to -11.375bps mid-morning today, relaxing a touch to -11.5bps at the time of writing.


So front-end flows related to data, rate expectations and the ECB have dominated basis, while the one standout issue of the last couple of days from CADES -- a $4bn, 3-year offering – not seen as making waves in the market post-launch.


With new issuance, as expected (see  Total Derivatives) having rapidly slowed down from the traditional sharp start to Autumn trading, the macro focus this morning was rewarded by news of a slightly surprising ‘dovish hike’ by the ECB this lunchtime, as it continues to fret about inflation.


The ECB hiked by 25bps (link), but in the spirit of compromise between ECB doves and hawks, issued a statement promising not to do it again. The ECB said “the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.”


While the hike surprised, the transparent peak talk was comforting in its clarity and triggered a modest rally across core bond markets, with Bund yields -5bps shortly afterwards. The initial reaction in basis seems to show the front-end retracing a little more from the earlier bid tone on the news.



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


New issues


USD new issues:

  • Korea Southern Power plans a $300m, 3-year bond at USTs +90bps via Citi, Mizuho and Nomura.


  • Bangkok Bank plans a 5y and 10y USD bond issue at USTs +135 and +165bps respectively. Via MS, Citi, HSBC and JPM.


  • CADES yesterday priced a $4bn, 3-year Social bond at SOFR +34bps via BNPP, CA, Deutsche and JPM.


EUR new issues:

  • Ontario pension scheme OMERS Financial Trust has mandated BNPP, Citi, Credit Agricole and TorDom to lead a long-dated EUR-denominated bond following investor meetings on Sep 25.


GBP new issues:

  • RBC yesterday priced a £600m 1y FRN due Sep 2024 to give SONIA +42bps. Self-led.


CHF new issues:

  • Credit Agricole has priced a CHF 160m, 5y at SARON +65bps via UBS.