The bully of the curve

The three month euro/dollar basis swap was traditionally called the bully of the curve because it controlled the rest, but there is no doubt who’s the boss now — dirty old oil.

As the US and Iran traded blows, Houthi threats to close the Gulf of Aden made oil traders freak out this week. Their alarm seized bond markets globally, pushing French and German yields to decade highs and Treasuries to an 18 month peak.

Gilt investors should have had a week of interesting navel-gazing, wondering whether new chancellor of the exchequer John Healey is going to be their next hero or villain. Instead they were rudely shaken out of it by global events, as Gilts turned out not to be special — all govvies were selling off.

A measure of stability has returned, but it’s looking like an edgy summer.

Kuwait likely had that in mind when it brought a $6bn three tranche bond this week, in the last minute of extra time of the bond market’s pre-summer season.

It was the first public bond issue by any of the highly rated Middle Eastern governments since the war began. Investors lapped it up, delighting bankers, who hope it will encourage other issuers.

Back in the UK, Andy Burnham isn’t probably expecting a honeymoon as prime minister — he didn’t win an election. But his peace will soon be disturbed by having to make a big call on Thames Water.

The UK’s largest water company, serving about a fifth of the population, is running out of money. Creditors have put a recapitalisation offer on the table, but nationalisation might be cleaner and safer.

How it’s handled matters keenly to the UK’s dozen other water companies. A good outcome for Thames bondholders could reduce the perceived risk premium they have to pay, but a messy one could be slippery for their cost of capital.