Cross Currency Basis Swap Levels in Developed and Emerging Markets
Selected Developed Markets
• Negative basis circumstances remain in place versus USD for most key developed market currencies.
• The most extreme versions are in JPY, CHF and DKK followed by EUR. SEK basis circumstances are less extreme and close to zero for long tenors.
• CAD pushes into positive territory for longer tenors, while AUD is the outlier with positive basis circumstances right along the curve.
• Large negative basis currencies can be played by overlaying issuance in USD or bond holdings in the FX in question (with CCS), while for AUD, long CAD and long SEK the opposite holds.
Selected Emerging Markets
• Negative basis circumstances remain thematic in Emerging markets space, with the most extreme version of this to be found on the front end of the CZK curve.
• The back end of the RUB curve has seen basis widening too (deeper negative), while long end MXN has seen some tightening (lower negative).
• TRY basis circumstances remain wide and negative. And negative basis circumstances obtain for the likes of PLN, HUF and KRW too. The outlier remains ZAR, which continues to show positive basis circumstances.
• Negative basis circumstances imply a premium being attached to USD, and so makes local currency issuance swapped into USD through CCS relatively expensive (to varying degrees).