Bankers' views have been divided on whether it would be better to print before or after the European Court of Justice’s opinion on the legality of the ECB’s Outright Monetary Transactions programme, expected on Wednesday. The German Federal Constitutional Court expressed concerns about the legality of the OMT last February, saying that it might breach EU primary law if pursued in the manner originally outlined by the ECB.
Some thought Slovakia’s decision to print before Wednesday to be downright strange. Others saw the clear market, investors’ high euro cash balances and thought it a sensible move.
It is impossible to know today whether in a weeks’ time Slovakia would pay more or less for a €1.5bn 12 year euro deal. But what is certain is that a sizeable deal could be printed on Tuesday or Monday, in good market conditions, at a good price ahead of a potential deluge of this kind of paper — Bulgaria, Croatia, The Czech Republic, Montenegro, Poland, Romania and Serbia are all thought to be targeting early first quarter issuance.
One DCM banker this morning cheerily told GlobalCapital that he expects the next month to be busy for CEEMEA sovereign bonds “if the geopolitical situation remains stable, if the oil prices remain stable, if rates remain stable”. That, while possible, is still a lot of crystal balls to juggle without one smashing.
It is telling that two of the region's most sophisticated borrowers — Turkey and Slovakia — chose to go ahead this year with printing their bonds before the decision was released on Wednesday. And in the wider European SSA market — a more sophisticated market that will be directly affected by European QE — sovereigns have also been more active early on this year. There have been €4bn and €5bn deals from Ireland and Belgium respectively, and Portugal is out with a dual tranche deal. By this point last year there had only been a €3.75bn deal from Ireland and a roughly €3.25bn deal from Portugal.
If the ECJ decision approves OMT, it is possible next week will be choc full of CEEMEA borrowers jostling to issue, high on being one step closer to the boost of more QE.
But the fact that only Slovakia and Turkey grabbed the cash while it was offered shows how CEEMEA sovereigns, and some of their advising banks, still refuse to believe that there is anything but chocolate, bunnies and kittens waiting for them around the corner.