Positive reaction to taper boosts bullish FIG
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FIG

Positive reaction to taper boosts bullish FIG

Fed

The FIG market was given an extra lift on Thursday — if it needed one — by the US Federal Reserve’s decision to taper its $85bn quantitative easing programme by $10bn on Wednesday, with bankers saying the market’s positive reaction to the announcement had banished fears that the bull run of the last couple of months could be derailed before the end of the year.

Cash spreads were on average 1bp-2bp tighter in FIG, with periphery credits 3bp-5bp tighter. The iTraxx senior financials was 3bp tighter at 89bp, while the subordinated index was 4bp tighter at 144bp.

The timing of the announcement came as a surprise to most market participants, who had expected the Fed to wait until the New Year to taper. But the concept of tapering itself is nothing new, having first been mooted in May.

The FIG bond markets took Wednesday’s decision in their stride, said the head of syndicate at a London investment bank.

“The bond markets shrugged it off,” he said. “Overall this is a positive end to the year. It’s better than they could have hoped. You don’t want volatility, you want the market to absorb it. The shock announcement in May followed the worst three months this year in primary market conditions. That took till September to clear, when people started buying again.

“It’s very positive for FIG. We were cautious that something might happen towards the end of the year to correct us into the New Year, because the market has been tightening for so long. But today’s reaction to the taper crystallises credit levels, and we are bullish for the start of 2014.”

Bankers expect the first full week of January to be busy, despite the fact that some accounts will be out of play because of the Epiphany holiday on Monday January 6.

One issuer, which many market participants suspect to be a German bank, was planning to issue a capital deal before the end of the year but has postponed it until January, and Macquarie Bank this week completed a roadshow for a senior deal.

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