There were some extraordinary moves from initial price guidance to final pricing last week for CEEMEA bonds. New issue pricing was slammed up to 60bp tighter in some instances. Books were huge. Pricing came flat or inside issuers' curves and in some instances well inside higher rated comparables.
So the quandary must come this week for syndicate managers — given the evident strength of demand for EM bonds — where do you start initial guidance now? After last week, the likely pricing that desks relay to issuers has to get tighter. But in some instances the comparables have barely moved, such is the illiquidity of the secondary market.
The temptation will be to start new deals tighter. There will be clients who want to see banks acting confident that they can deliver what they have suggested. There will be investors starting to get a little ticked off with the big moves tighter. There will likely be some talk around the market that syndicates are paid to steer pricing and seem to be getting it wildly wrong, at least in the early stages of a deal.
But syndicate managers must try to remember that it is the final result that ultimately matters, not the means of getting there. Investors last week freely admitted that they bought some deals that they would never have considered, had the initial guidance been closer to the landing levels. The tasty bait of a potential new issue premium needed to be there to reel them in, even if by the end of the process it had been ripped away.
The market, while seemingly on an unstoppable run, is nonetheless still fragile. EM investors have not yet forgotten the horrific trading of 2018 and there is something of a skittish horse feel around the optimism.
One syndicate manager said last week that he thought all it would take to drain this buoyant mood out of the market is for a few newly printed bonds to sell off in the secondary market.
So syndicate managers have two choices this week — take a punt on going much tighter to look like they know what they’re doing, unless of course the deal fails. Or, be more certain of actually getting the result they want, and risk looking like idiots. They should pick performance over pride.