Cross-Currency Basis Turns Bid as Issuance Cools: EUR, GBP, and CHF in Focus

In recent weeks, cross-currency basis markets have shifted noticeably, with demand dynamics changing in key currency pairs such as EURUSD, GBPUSD, and CHFUSD. The underlying driver? A slowdown in bond issuance, paired with growing investor appetite for term premium across maturities. Here’s a breakdown of what’s been moving and why these developments matter.

EURUSD Cross-Currency Basis Rebounds Amid Dwindling Issuance

The EURUSD cross-currency basis is firming once again as corporate bond issuance in euros drops off. After a particularly active May, when EUR-denominated issuance surged—outpacing USD issuance thanks to more favorable funding levels—the market is now recalibrating.

This rebound comes after a period of suppressed activity earlier in the year, when President Trump’s tariff announcements injected volatility into the markets, prompting issuers to hold back. Once conditions stabilized, a backlog of demand was unleashed in May, creating heavy supply and putting downward pressure on the EURUSD basis. But with that supply now largely absorbed, the tone has turned more supportive.

European investors have been active payers in the cross-currency market over the past week, with three consecutive sessions of notable activity, despite a muted pipeline for new deals. Compounding the bid tone has been increased buying of European assets by offshore investors. This coincides with elevated USD liquidity in the system, driven by reduced Treasury bill issuance ahead of the looming U.S. debt ceiling deadline. With more cash searching for returns, short-end USD funding markets have seen a rise in demand for euro exposure—amplifying the strength in the cross-currency basis.

GBPUSD Basis Recovers from Lows, Issuance and Spread Dynamics in Focus

The GBPUSD cross-currency basis has also been clawing back from the deep dislocations seen earlier this year. Those lows were driven by UK liability-driven investment (LDI) flows into U.S. corporate credit at the height of the tariff-induced turmoil. Since then, both outright levels and spreads have been on the mend.

One of the notable developments has been the paying activity from fast money accounts in long-dated structures like 5y5y, with the 5s10s segment of the curve particularly dislocated on a standard deviation basis. Despite thin issuance in sterling—due to relatively unattractive pricing levels—the lack of supply has lent support to basis recovery.

While levels remain below pre-volatility norms, the foundation for further normalization appears intact. Investors are selectively re-entering, and spreads have room to continue converging toward longer-term averages.

CHFUSD: Issuance Seasonality Meets Strategic Positioning

The Swiss franc market, too, has followed a distinctive seasonal pattern. May is historically a strong issuance month for CHF-denominated bonds, and this year was no exception. Nearly every trading day saw new deals, but their market impact was more muted compared to earlier in 2025.

Why the difference? Fast money positioning was relatively clean going into May—unlike in March, when substantial unwind flows exacerbated volatility. As a result, even though fast money accounts entered received positions in structures like 5y5y to play the seasonal issuance, the volumes were modest. The belly of the CHFUSD curve remained largely rangebound, with the 5-year tenor hovering between -20 and -18 basis points over the past month.

That said, the long end of the curve told a more dramatic story. There was intense paying interest in 20-year and 25-year structures, with nearly $800,000 in DV01 traded in just one week through brokers. This pushed the 20y CHFUSD basis 10 basis points higher since mid-April, likely tied to U.S. investor flows—possibly related to the National Institutes of Health (NIH) or similar large institutional allocators.

Although that wave of long-end paying has tapered in intensity, fresh demand has emerged more recently. Both fast money and real money accounts have been active in structures such as 1y10y, 5y5y, and 4y7y. Interestingly, some players are even reversing previous positioning, further highlighting the market’s directional shift.

As summer approaches and issuance slows, the structural “offer” pressure in the CHFUSD cross-currency basis is easing. With current levels still attractive relative to early-year valuations, the bid tone is expected to persist.

Key Takeaways

EURUSD: Bid tone is back after a strong issuance cycle in May; short-end USD liquidity dynamics are supportive.
GBPUSD: Recovery continues from tariff-related lows, with long-end spreads particularly distorted.
CHFUSD: Issuance seasonality played out quietly in the belly but caused a stir in the long end; fresh paying interest suggests further upward momentum.

Cross-currency basis markets remain sensitive to issuance trends, macro liquidity, and investor appetite for term premium. As we head into the quieter summer months, the market’s focus will likely shift toward positioning and macro catalysts—especially central bank guidance and fiscal developments in the U.S. and Europe.

IBAFIN