After last week, many had assumed that the primary market would be closed for business for the rest of this year. In 2014 the last trade was launched by Cariparma on December 3 but the year before National Bank of Canada broke ranks when it priced a €1bn deal on December 10.
In 2012 the last euro trade was seen on December 6, and for many years before that, it has been conventional wisdom to leave the last few weeks of the year free.
Investors would tell syndicate bankers that they were closing their books for the year as they had met their targets. Trading desks would pare down inventory in year-end, and become less willing to bid for the older bonds investors might want to switch out of to buy into the new deals.
But that was then, and this is now.
Roll forward to December 2015 and it seems the market is still going strong. Following the rise in yields after last week’s European Central Bank meeting, covered bond investors’ yield targets are now back in the sights of the market and this alone has catalyzed issuers to break with convention and supply the market at the end of the year.
The most notable impact has been at the short end, where many covered bonds were trading on negative yields until Thursday last week.
On Monday Canadian Imperial Bank of Commerce attracted €1.8bn orders for its €1.25bn three year, after swap rates rose from negative 10bp to positive 3bp. The deal offered a final yield of 0.114%. Not much, but still 38bp more than the German government pays.
On Tuesday, UniCredit AG followed suit with a four year priced at 5bp through mid-swaps. The fact swap rates had risen to a positive 13bp meant the deal sneaked through with a positive yield, in this case just 0.089%. That won't make anyone rich, but for cash rich bank investors looking to park their money into something that offered 28bp over Germany, it made sense.
The covered bond market is still obviously open for short tenors and particularly for the most highly rated deals usually bought by central banks and bank treasuries for their liquidity portfolios.
But before last week’s ECB meeting there was absolutely no way of knowing that this week’s window would be open.
And, since January 2016 is likely to be the busiest month of the year, as it always has been, it makes sense for issuers to try to beat the crowd and print while the opportunity lasts. Other German and Canadian names could be seen before the year is out, and maybe one French issuer. Treasurers that have stayed nimble will be rewarded for it.