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The investor push-back begins


SSA borrowers have long been used to having it their way amid the exceptional monetary easing meted out by central banks since the global financial crisis. But this week could be the moment things started swinging back in favour of investors.

The Federal Open Markets Committee in the US upped its target rate by 25bp as expected and its “dot plot” favoured those investors positioning for another two hikes this year over those expecting one. All very predictable.

But the meeting further levelled an already near flatlining dollar curve, meaning most investors are unlikely to look at paper maturing beyond the short end of the yield curve.

A day later, the European Central Bank delivered a “dovish taper” by pledging to end quantitative easing in December while all but ruling out any rate rises before the end of summer next year.

That means public sector borrowers can enjoy rock bottom rates in euros for a bit longer than perhaps many were expecting. But it is hard to see them lasting much longer than that — not least because the ECB knows it must start normalising to leave some firepower for when the next downturn comes.

Investors’ rising strength was evident in this week’s SSA market, which was pretty busy considering it held the two most important central bank meetings of the year so far.

Only one borrower in either euros or dollars was able to tighten pricing and, although another two may have been able to do so had they not been looking for large size. That is a far cry from what issuers have enjoyed and investors have had to stomach for the last few years.

It’s no longer the end of the beginning of this extraordinary time — it’s the beginning of the end.

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