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People and MarketsCommentLeader

A great week but caution needed

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Public sector borrowers have enjoyed the finest of weeks, printing across the euro and dollar curves, finding size in sterling and Australian dollars and enjoying reopened Canadian and New Zealand dollar markets.

It’s almost so good that one could forget that just a week ago, Bank Nederlandse Gemeenten had to cut a €1bn 10 year deal to just €500m after failing to drum up enough demand.

Most bankers believe that in many ways it’s a close run thing. This week, issuers just started that basis point or two higher with guidance to ensure a successful deal, say some. A slight repricing was needed last week, say others.

But there are still plenty of dangers. One funding official this week warned that “sequencing these transactions has been quite delicate”, likening it to a the book (and film adaptation) The Hunger Games, where contestants are forced to race towards the centre of a playing area to get their hands on scant resources, all the time watching over their shoulder lest a peer bumps them out the way.

While resources and options are in healthy supply for the moment — and the SSA market has done a tremendous job over the years of avoiding collisions — there is the risk that one borrower could, even accidentally, trip up another by going for the same deal.

That could end up with another cut trade like BNG or even a pulled deal. The market may have brushed off one such setback at the start of the year. But while everyone felt that was misfortune, twice would look like carelessness — just what the market does not need as SSAs seek to take a healthy bite from their big programmes.