With the US debt ceiling debacle over for another few months, dollar funding SSA issuers are keen to fund before the political fighting begins anew in early 2014 — unhelpfully, also the busiest time in the SSA market.
But with cross-currency basis swaps becoming more favourable over the past month, issuers would be wise not only to fund but also to expand into new markets at the same time.
Central banks, keen to diversify away from dollars, have been ramping up their interest in niche deals. The US government shutdown can only have helped drive that trend.
The five year Canadian dollar/dollar basis swap has risen over the past month, tipping into positive territory and allowing the World Bank this week to come with its first public deal in the currency in a year.
There may not be enough Canadian cash lying around to support a series of syndicated deals but the opportunities for small private placements are ripe.
Meanwhile, the sterling/dollar basis swap is providing interesting arbitrage plays for dollar funders. The World Bank sold its first private placement in sterling in two years late last week, while the Asian Development Bank sold a syndicated sterling tap on Monday. The smart money is on more of these trades, public and private, appearing before year end.
The euro/dollar basis swap, heavily weighted in favour of euro funders printing in dollars over 2011 and 2012 at the height of the eurozone debt crisis, is also getting closer to levels where dollar funders can think about euro deals.
The International Finance Corporation hinted to EuroWeek’s sister publication SSA Markets on Tuesday that it could look at a debut euro benchmark, although the five year euro/dollar basis swap is still about 10bp shy of where it needs to be.
But the IFC is also investigating the Schuldschein format — a private market that is expanding beyond its traditional German homeland to attract growing numbers of international investors and issuers. SSAs that have not tapped this market should look to integrate Schuldscheine into their toolkit to open up a new rich seam of euro demand.
But the benign issuance conditions — and the opportunity for experiment that they bring — will not last forever, especially if next year’s US negotiations cause the market to follow the government into shutdown. Issuers would be wise to break the ice with new investors while the going is good — safe in the knowledge that when times get tough again, they will have more options than before.