The EFSF has mandated three banks for a 10 year benchmark deal, which, should it go well, will wrap up a stellar week for borrowers associated with Europe抯 sovereign funding crisis. The bail-out vehicle will follow a thumping €7bn sale in 10 years from Spain on Tuesday and what looks to be a successful €6bn 30 year sale from Italy on Wednesday.
Italy auctioned 12 month bills on Friday at the lowest yields since the adoption of the euro. Despite the historical lows, the eurozone periphery rally over the last year may have further to go, said analysts.
Market conditions seem ripe for printing deals and SSA bankers are urging borrowers to come to the market. But it is starting to look desperate on origination desks as well funded issuers which are growing ever more used to a market where they can pick and choose their moment to borrow mean the deal pipeline is miniscule.
Since the ECB unveiled the Outright Monetary Transactions (OMT) scheme last autumn, peripheral bond yields have enjoyed a spectacular rally and the spectre of an Italian or Spanish bailout has receded. The prospect of earning decent returns from those countries’ bonds is receding at a similar rate. That the Bundesbank has raised objections to the OMT scheme should not reverse that trend.
Nearly three years on from the start of the eurozone sovereign debt crisis and investors are still largely driven by fear, but at least now that fear is showing its face in the mega book sizes on this week’s SSA deals. Take one announcement from the Bank of Japan and investors pile wholesale into any issue going in a desperate attempt to get in ahead of the anticipated flood of Japanese buying.
European governments should sign off on guaranteed bonds for small to medium enterprise lending to boost their countries’ sluggish growth — and the buyside is ready to contribute, a leading portfolio manager has told SSA Markets.
Things are a sight calmer in Europe than much of this week’s alarmist coverage of the Cypriot shenanigans would have you believe. While the rolling news channels helicoptered in flak-jacketed hacks and camera crews to every cash machine on the island to record history in the making — that is to say short queues of calm people withdrawing cash — the real action in the European crisis remains elsewhere.
The lack of yield on offer in dollars and euros is encouraging investors to look towards niche and local currencies in an effort to maximise the return on their investment. With the EBRD selling its first ever Vietnamese dong bond this week, niche currency bankers are confident in the outlook for emerging market currencies.
The UK Debt Management Office should sail through its final syndication of the year on Tuesday despite Moody’s cutting the sovereign’s rating late last week, said SSA bankers and analysts. The Gilt market on Monday barely registered the downgrade.
The euro market was easily outshone by dollars this week. While it produced a pair of benchmarks that were comfortably oversubscribed, the concession that issuers had offered contrasted sharply with dollars, where three issuers priced $13bn of debt in just 48 hours at levels right on top of their curves. But that’s no reason for despair, the euro market is still robust.
The Kingdom of Spain exceeded its maximum target at a bond auction on Thursday morning, following hot on the heels of its return to syndicated dollar issuance on Wednesday. The Iberian sovereign had targeted a maximum of €4bn but placed just over €4.2bn.
The Republic of Ireland — which is rumoured to be lining up a 10 year euro benchmark for next week —came to auction on Thursday, selling €500m of three month bills. The yield on the debt was at 0.24%, up from 0.2% at the previous auction of the debt on January 17.
Spain priced on Wednesday its first dollar benchmark since 2009. The deal confirms what some senior SSA bankers have suspected has been the case for a few months —that peripheral Eurozone borrowers have more than adequate market access in dollars despite the ups and downs of the ongoing sovereign debt crisis in Europe and its associated political turmoil — and that the market for dollar issuance by this borrower group is now reopened.
The EIB opened its EARNs programme for the year on Thursday with a successful five year deal that achieved giant size, tightened pricing and a sub-Libor reoffer level. The deal was the latest example of how much January 2013 has so far felt like a return to pre subprime crisis days in the SSA market.
The Belgian 10 year syndication was a good looking trade but amid the obvious good news of a €7bn book and pricing through guidance, there was a feature of the syndication that may have been missed by most but would be a welcome feature to public sector bookbuilding exercises.
The Republic of Italy rounded off a spectacular week for peripheral eurozone issuers with a yield-busting auction on Friday, but the sovereign was warned to get moving on a benchmark as the sustainability of the recovery was called into question.
The EIB laid down a statement of intent with its £1bn blockbuster this week. The European supranational’s opener for the year suggests it is trying to get maximum cash through the door while the going is good. Despite the positive market tone driving some issuers to wait and see rather than pile in, they should tend towards the EIB’s tactics.
How 2013 will pan out in the capital markets is too tough to call. At the end of last year there were plenty of doom merchants predicting all sorts of disasters. There was justification for it and some things did go badly — especially at UBS. But plenty went right from the bumper first quarter, to many more blowout deals than dogs and with most issuers able to wrap up early for the year.
UK investors have taken the most sensible possible reaction to the news that S&P has revised its outlook on the UK’s credit rating to negative, and heaved a collective sigh of boredom.
Italian and Spanish auctions this week will record subdued demand and heightened yields after news broke over the weekend that Italy’s prime minister, Mario Monti, is to stand down, said analysts.