In this note, we look into recent development on the xCcy basis swap markets. The focus is tilted towards scandi currencies.
Key points are:
- Full convergence ahead ? 3M EURUSD break nearing zero (-1.25bps now). Last push may well come from liquidity drainage, pushing Euribor-Eonia tighter. 3M FF vs. Eonia basis spread lies around -7bps.
- These levels may be hard to sustain. Can be punctured by (1) sentiment turning bad (2) new LTRO from the ECB (3) ECB depo cut (4) less Fed QE reasonably quick. In sum, a widening is in order.
- Q4 issuances unseasonably high for Swedish issuers in EUR. However, despite some payer flow, intermediate part of EURSEK curve lies near 4-year lows. We like paying e.g. 6m7y EURSEK anticipating Q1 flow along with an exposure toward more ECB loosening.
- NOK basis trading very tight vs. USD over the past month. EURDKK basis slowly drifting wider
Read the full report:FX Research
Nordea