medium · Debt Capital Markets bond-instruments-structures
A US issuer prints a Euro-denominated bond (a 'reverse Yankee') and swaps the proceeds back to USD.
If the cross-currency basis is -30 bps (the cost to obtain USD), how does this affect the all-in funding cost?
- It increases the all-in USD cost because the issuer must pay a premium (the basis) to swap the Euros back into its home currency.
- It decreases the all-in USD cost because the basis represents a discount on the foreign interest rate.
- It has no effect because covered interest parity ensures that all-in costs are always identical across all currencies.
- It only affects the principal exchange at maturity, not the periodic interest payments.
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