hard · Debt Capital Markets
An issuer is deciding between issuing a 10-year bond in USD or EUR. The USD coupon is 5.00%. The EUR coupon is 3.00%. The 10-year cross-currency basis is -25 bps (meaning the EUR payer receives USD SOFR - 25 bps).
If the 10-year USD/EUR swap rate spread is 180 bps, which market is cheaper after swapping back to USD?
- USD is cheaper because the basis is negative.
- EUR is cheaper by 45 bps.
- Both are equivalent because of covered interest parity.
- USD is cheaper by 20 bps.
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