After completing its 2018 funding requirements of €8bn, the EBRD received authorisation to pre-fund up to €2bn of its borrowing needs for next year, as previously reported by GlobalCapital.
The supranational aims “to take advantage of any opportunities in the remaining months of the year”, according to the EBRD’s head of funding.
While it has now issued back-to-back benchmark bonds in sterling, the EBRD is nowhere near a frequent issuer in the currency.
Before its July 2023 FRN, it had not issued a syndicated sterling bond for four years. The EBRD overwhelmingly favours dollars for its benchmark funding.
But the choice of sterling by the EBRD seems a wise one. First, the currency is, at the moment at least, the least volatile compared with euros and dollars amid geopolitical and rates uncertainties. Brexit could change things, but the Gilts market has stood up well so far.
Sterling supply from SSAs is also very much in demand.
Non-UK sterling SSA issuance has reached an all-time high this year, beating last year’s record of £24.6bn, according to Dealogic. The demand has been mainly driven by the favourable move in the dollar-sterling basis swap, which has made the currency particularly attractive to dollar funders.
But it isn't just about sterling's particular qualities. Market conditions now may be far more attractive than they ever will be in 2019. Political turmoil over Italy could easily get worse, and the European Central Bank has ended its public sector purchase programme.
Public sector borrowers have avoided pre-funding in recent years because of the cost of carry, exacerbated by negative rates available on euro deposits. But the cost of carry is also applicable when issuers front load their issuance during the first half of the year. Pre-funding is simply a more extreme form of front-loading.
As long as there is investor appetite, borrowers should take advantage of the current conditions and get a head start for next year.