A debut deal from the European Stability Mechanism, Italy’s first seven year syndication and a Spanish assault at the long end of the curve make this a week for headline grabbing trades in sovereign, supranational and agency debt markets. But these deals shouldn’t detract praise from a Nordic agency’s short-dated print which proved that dollars are still accessible with the right approach.
Kommuninvest looked like it could be taking quite a risk when it decided to announce a dollar deal on Monday afternoon — the first benchmark syndication in dollars since the US government went into shutdown on October 1.
With the clock ticking on US debt ceiling negotiations and no end to the political deadlock in sight — not to mention the non-appearance of non-farm payrolls data on Friday and little clue as to when it might be released — an issuer could be forgiven for feeling a little apprehensive about execution risk in the currency.
But Kommuninvest, which had been aiming to bring a deal in October but did not have to come this week, made a gutsy move, played its hand to perfection and was well rewarded.
It sold a larger deal than it had planned to, and at a level — 11bp over mid-swaps — well inside initial price thoughts, and 4bp inside where fellow Nordic agency Kommunalbanken printed a just oversubscribed three year two weeks ago.
Kommuninvest’s deal doesn’t mean that investors are in the mood for a free-for-all. It very carefully offered generous initial price thoughts to draw in any investors concerned about volatility, and then slowly ratcheted pricing in. But it does show that the demand is there (for now) for those issuers that get their tactics right.
And even the level of demand is almost a secondary issue. The closer we creep towards the October 17 deadline for the US government to rearrange its debt ceiling with no solution in sight, the harder it is going to get to bring dollar deals. If the US government goes into technical — or real — default this month, even a slightly undersubscribed deal this week will still be cash in the kitty.
The possibility that no solution is reached in time is a very real one. Kommuninvest and its syndicate should be praised for being well aware that there are bigger risks afoot than a slightly turbulent execution. In a few weeks time the borrower could be left looking very smart indeed.