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The tough got going before the going got tough

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With capital markets set to turn rougher, borrowers have been compelled to issue their toughest trades first

French banks made it clear this week just how difficult they think issuance conditions are becoming. They hit the dollar additional tier one (AT1) market with new issues early this week and avoided what would have been worse terms, had they delayed.

The trades, from Crédit Agricole on Tuesday and BNP Paribas on Wednesday, had dropped by half a point to a cash price of 99.50 by Thursday when UBS opened books for the third dollar AT1 transaction of the week — underscoring that, like in comedy, it’s all about the timing when it comes to printing bonds.

And with rates volatility possibly causing curves to steepen, Crédit Agricole and BPCE were content to pay a slightly elevated premium of 10bp-15bp this week to tap longer 10 year senior funding in euros.

In the same vein, issuers leveraged rare funding in more niche currency markets. Crédit Agricole and BNP Paribas spotted a favourable funding opportunity in Swiss francs. And in sterling, National Australia Bank hit covered bonds with a sizeable £1.5bn trade, while Rabobank and Lloyds issued rare bail in-able transactions.

Market conditions in the sovereign, supranational and agency market looked great. KfW attracted a record €33.5bn order book for its €5bn January 2032 and the European Investment Bank brought near record demand of $14bn for its $5bn March 2027.

But this belied the fact that SSA new issue premiums are expected to rise as supply from the sector — along with yields — increases once the real pain of central bank asset purchase tapering begins to be felt.

Net purchases under the European Central Bank’s Pandemic Emergency Purchase Programme will fall to zero from April. In the US, the Federal Reserve recently said it plans to double the tapering of asset purchases to $30bn a month and has been more forthright about prospective rate increases.

The message is loud and clear: with rates volatility likely to become an enduring theme this year, borrowers must get as much of their funding programmes done as quickly as possible.

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