Cable basis set to shrink as pension buyouts dwindle
BoE rate cuts and tightening US credit spreads expected to further normalise the sterling-US dollar cross-currency basis
The sterling-US dollar cross-currency basis is predicted to tighten further as UK pension fund buyout activity abates on the back of further likely rate cuts from the Bank of England.
Over the past two years, the cable basis has been dictated by the activity of UK insurers which have taken on pension fund assets and liabilities in a process known as buyouts. With the assets they receive, insurers have looked to US credit markets for higher returns, entering into cross-currency swaps to convert
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