And while issuers can offer attractive spreads over US Treasuries, the continuing fear of implosion in the Eurozone market coupled with plummeting underlying yields means the market is only open to the best of the best — and even they have to be nimble in jumping into the small windows that appear.
Two of those names successfully concluded dollar bonds this week — the European Investment Bank and Rentenbank.
The EIB followed its successful €3bn 10 year Earn with a $3bn five year global and a £200m short dated floater, highlighting the supranational’s ability to garner the support of a wide investor base even in times of extreme volatility.
"It is impressive that EIB’s access to the dollar and euro markets in size in intermediate and long dated maturities is unhindered by the low yield environment and the general fragile environment," said Guy Reid, head of SSA origination at UBS, which lead managed the transaction with Citi and Morgan Stanley.
"As markets remain volatile, we were not expecting the levels of oversubscription seen by the EIB earlier in the year. Even so, we were impressed by the volume and quality of the demand that materialised for the dollar transaction."
Sandeep Dhawan, EIB’s head of dollar funding, said the fate of the SSA dollar issues over the summer period, some of which went well while others were not so successful, underscored that the market remains brittle and that investor sentiment, which can vary from day to day, and intra-day volatility determine whether deals succeed or not.
"This necessitates ultra-quick planning and rapid intra-day execution to avoid pitfalls," he said. "Inevitably, this may lead to smaller oversubscriptions — which, if at all, is a small price provided you can command the attention of quality accounts. Our latest transaction did just that and we are very pleased with the outcome."
The EIB dollar bond, priced at mid-swaps plus 4bp which represented a new issue premium of 2bp, attracted a book of $3.6bn with orders from more than 60 investors.
Some 41% was sold to central banks and official institutions, 54% to banks and 5% to fund managers.
"Due to the rally in the underlying market over recent weeks, this is the only liquid current coupon five year benchmark and many investors, particularly central banks, were attracted on this basis," said Reid.
"Conversely, a number of accounts were naturally deterred by the lower yields. However this was a minor consideration for many accounts given yield expectations for the future.
"The vast majority of orders were on an outright cash basis, with very limited switching out of either Treasuries or other SSA product, demonstrating the enduring appeal of the EIB at a time of heightened volatility."
Including the transactions issued this week, the EIB has raised over €66.5bn year to date, or close to 90% of its €75bn programme.
Dhawan said that the five year is likely to be the EIB’s last global this year under its 2011 funding programme unless there are some opportunities to prefund.
Rentenbank’s premium deal
Rentenbank, which announced a minimum $1bn seven year global on Wednesday, enjoyed a very successful reception, not least because of the attractive new issue premium offered by the mid-swaps plus 30bp pricing, which lead managers Citi, Daiwa, HSBC and JP Morgan said represented some 4bp over secondaries.
A $1.6bn high quality book comprising 75% of central banks and official institutions and 18% of asset managers amply justified an increase to $1.5bn, making this seven year bond the largest in the tenor to be launched this year.
"This was a very good outcome for Rentenbank," said a head of SSA syndicate away from the lead managers.
"It nimbly capitalised on the desire of central banks to pick up yield and the book looks fantastic with three-quarters sold to central banks.
"It wasn’t obvious the deal would work as seven years can be difficult but Rentenbank nailed it by paying a decent premium."
The lead managers said the transaction was timed perfectly, responding to a correction in the underlying Treasury market, a dearth of paper in the sector and a growing number of investors extending duration in search of a higher yield.
The deal is considered as pre-funding by Rentenbank as it has already completed its programme for the 2011.
