Plenty of SSA funding teams can point to a strong track record so far this year, tempting them to conclude that they can afford a quiet month as Europe and the US heads into the summer holiday season. But with the number of flashpoints that surely await intrepid treasurers come September, they are in danger of looking a little overconfident.
There remains the looming threat of the US beginning to reduce quantitative easing. Opinions on exactly when this might happen fluctuate with every non-farm payrolls announcement, but the next Federal Reserve Open Markets Committee meeting is on September 18 and some observers still reckon it could come as soon as then.
Fed chairman Ben Bernanke's comments on June 19 on the possibility of easing off on the QE pedal frightened issuers away from the dollar market for the best part of a month. It took until July 23 before any issuer was bold enough to try and sell anything longer than four years, with the Japan Bank for International Co-operation selling five and 10 year bonds.
Even if the Fed doesn’t rock the boat, just four days later markets will be nervously watching the votes come in for Germany’s federal elections. Syndicate bankers and strategists alike are surprisingly nonchalant on that (perhaps remembering the kerfuffle ahead of the Italian elections earlier this year, which turned out to be something of a damp squib).
But with many German voters convinced that they’re subsidising the periphery’s continued presence in the eurozone, the electorate may just decide to throw a spanner in the works. Even the sniff of Merkel being dethroned could cut down on issuers’ chances to peddle their wares.
There is an alternative, but it means acting quickly. The Kangaroo market is handily positioned on the side of the world that is in the depths of winter. Folk are at work and looking to buy. And there is a bumper August of redemptions ahead: some A$4.55bn ($4.05bn) of Kangaroo debt is coming due, all of it from high grade SSA issuers.
What’s more, while issuers complain that a 10 year dollar deal is pure fantasy at the moment, the far end of the curve in Australian dollars is seeing renewed interest. Japanese investors — not to mention Asian central banks — are looking to maximise their gains by heading down the yield curve.
A smattering of issuers have started to seize this Antipodean opportunity: Kommunalbanken and Rentenbank both sold 10 year taps last week, while Bank Nederlandse Gemeenten sneaked in with a A$30m tiddler on Tuesday.
Others should take note. There exists a window now to help issuers edge closer to full funding while adding a handy bit of duration. If core markets get jammed up in the autumn, those names that tapped Kangaroos in the summer may be forgiven for feeling pleased with themselves. Those that did not may have an unwelcome extra bit of stress.
