MONEY MARKETS-Japanese basis swaps widen on samurai bond glut

* Japan yen/dollar basis swaps move out on samurai pipeline

* New issues of 200-300 bln yen expected next week

* Australian interest rate swaps jump after strong GDP

* Aussie rate cut hopes muted, next move seen up by some

By Umesh Desai

HONG KONG, Sept 1 (BestGrowthStock) – Japanese basis swaps moved
out on Wednesday extending a recent widening streak as a
growing samurai bond issuance pipeline pushes up the cost of
swapping yen for dollars.

The sale of Samurai bonds, yen-denominated bonds sold by
non-Japanese issuers, total 1 trillion yen so far this year,
exceeding 0.92 trillion in the same period last year, according
to Reuters data.

The 5-year yen/dollar basis swap (JPYCBS5Y=YMPR: ), the most
active segment at the medium end of the curve matching the most
popular tenor in samurais, inched 2 bps wider to -48/42
bringing the move in the past two weeks to 8 basis points.

“The market has expected issuances to be announced and they
have pushed back the 5 year aggressively in the last 4-5 days,”
said a Tokyo-based rates trader at a European bank.

“There is positioning for 200-300 yards of flows to hit the
street in the next week or so, causing the 3-5 year sector to
be better offered.”

Traders use the term “yard” when referring to a billion, to
avoid confusion with trillion or million, the latter often
referred to as a buck.

Issuers such as HSBC (HSBA.L: ) (0005.HK: ) and the Indonesian
government have expressed interest in selling samurai bonds
although no time has been set.[ID:nTOE67T055][ID:nJAK435591]

The movement in the basis, the difference between
cross-currency swaps and interest rate swaps in yen, was
primarily on account of movements in the cross currency market
as the interest rate swap market was deep enough to absorb the
Samurai flows.

“The CCS market is very sensitive to flows hitting the
street and when the market knows there are flows coming one way
its not going to necessarily sit and oppose it,” the
Tokyo-based trader said.

Japanese cross currency yen/dollar CCS for the 5-year
segment (JPUS3L5YU=TRDT: ) was at -51 bps compared with Tuesday’s
-46.5 bps.

That compares with a 1.5 bps rise in the 5-year IRS
(JPYSB6L5Y=: ).

AUSSIE RATE CUT HOPES QUELLED

In Australia, interest rate swaps jumped and expectations
of a rate cut were pared back after data showed the economy
grew at the fastest pace in three years last quarter, handily
beating analysts’ forecasts.

Government statistics showed gross domestic product (GDP)
climbed 1.2 percent in the second quarter, compared to the
first when it rose 0.7 percent, outpacing forecasts of a 0.9
percent increase.

This took growth for the year to 3.3 percent, marking
Australia’s 19th consecutive year without a recession.

Swaps (AUDIRS: ) jumped across the curve rising by 5-10 bps
in the 1-4 year segment causing some steepening in the short
end of the curve as 3-4 years rose faster.

A credit Suisse measure (CSRBA=CSAU: ) shows the market is
now poised for a 7 percent chance of a rate cut next week, down
from a 13 percent chance on Tuesday.

Interbank futures (0#YIB:: ) are still suggesting a 20
percent chance of a rate cut by the year end.

A Reuters survey of 18 economists found all expected the
Reserve Bank of Australia (RBA) to keep rates at 4.5 percent
after its monthly policy meeting on Sept. 7. It has already
raised its key cash rate by 150 basis points since October.

“We remain of the view that the next move is firmly in the
upward direction although the timing is complicated by the
still contained inflation at this juncture coupled with a clear
loss of momentum in U.S. growth and generally uncertain global
outlook,” said a client note from RBC Capital Markets.

It has a policy rate target of 5.25 percent by end-2011.

MONEY MARKETS-Japanese basis swaps widen on samurai bond glut