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What are MTNs good for?

In a market tormented by volatility, where the price of going to the public markets is too high for many, banks need somewhere to turn. Many have opted for the MTN market — but more should follow.

Alongside elevated new issue premiums, growing execution risk is keeping borrowers from the public market. As a result, banks have been snapping up opportunities in MTNs, offering levels approaching their secondary curves — or even sometimes overshooting them — to try to entice investors in the private market.

There are also plenty of cash-rich investors with few options in the public market willing and ready to buy MTNs. Tweaking offered levels can only make them more interested.

Some issuers might worry about the lack of liquidity in MTNs compared with syndicated bonds. But ABN Amro showed over the last few weeks that what began as just a €100m MTN can be slowly increased via a series of privately placed taps to reach benchmark size.

But the opportunity for other banks to follow ABN Amro and others’ lead will not be available forever.

The short end demand for bank MTNs is often driven by French money market funds. And although interest from such investors tends to be seasonal and dictated by cash flows, there is clearly a window of demand now and issuers shouldn’t be slovenly in taking advantage of it.

And for those issuers looking for longer dated funding or in formats other than senior unsecured, the private placement market is also throwing up opportunities.

Australian and Canadian banks are among those to have printed long dated, privately placed covered bonds over the last few weeks.

The difficulties in the public markets might be grabbing many of the headlines, but bank issuers would do well to ignore the hype and get on with their MTN programmes.

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