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Time for the tough to get going, before the going gets tough


It’s time to get the toughest deals done as market conditions are likely to deteriorate in the autumn, when a second coronavirus wave and a more material deterioration in banks’ balance sheets could knock sentiment.

Markets have had a good run with the Dow Jones and the iTraxx Europe Main indices both retracing more than 70% of March’s plunge. 

And with financial spreads now almost back to the levels last seen in late February, UniCredit and Nationwide took the opportunity to pre-fund in the senior unsecured market this week.

More importantly, after BBVA issued the first green additional tier one deal last week, de Volksbank followed this week with the first green tier two transaction. 

And with the two subordinated bonds pricing close to fair value, it seems investors’ appetites have only just been whetted.

The fact euro swap rates are negative all the way out to 15 years means investors are desperately searching for a return. 

So when the opportunity to lock in a yield of 6% for the Spanish transaction and 1.75% for the Dutch one presented itself, they jumped at the chance.

The green credentials must have helped, but with yields likely to be pinned down for the foreseeable future and probably heading lower, it was the high return that really got buyers salivating — and the higher the better.   

In that sense, the most challenging issuers now have an opportunity to get their most difficult trades done — and with a summer break just around the corner, the sooner the better. 

For, as an article in the British Medical Journal said last week, “we are only at the beginning of this epidemic, and claims that it’s all over can be firmly rejected.”

Markets will inevitably catch up with epidemiologists, but before they do, there’s a funding prospect that should not be missed.