Financial institutions had little difficulty selling deals last year, but rolling into 2022 the market got a rude awakening with the unsettling macroeconomic backdrop causing rates to soar and curves to steepen.
With global central banks set to tighten policy and taper asset purchases, primary market conditions may worsen, suggesting tactics that improve execution are worth dusting off.
In the senior market, tenors longer than five years are no longer a slam dunk and in covered bonds anything longer than 10 years is likely to be treated with extreme caution.
The aversion to longer duration may mean that two-part transactions, comprising short and longer pieces, may — as Raiffeisen International Bank found out this week with its 15 year portion — be off the table.
But that’s not to say two-part trades cannot be done. There is clearly a case for dual currency trades in different tenors, such as the rare funding exercise pulled off this week by Bank of Nova Scotia in sterling and euros.
Irregular times call for flexible pricing strategies — and inching out pricing with a view to taking the last basis point could be a recipe for disaster. If issuers are willing to pay a concession, they could consider making it clear upfront.
Canadian Imperial Bank of Commerce did so this week with its five year sterling senior deal, where it committed to price within a range from the outset.
Moving from initial price thoughts to a defined spread early on provides helpful clarity and worked well for Bank of Montreal, which issued the biggest euro covered bond since 2006. Banco Santander followed the same stratagem with its three year non-call two.
As RBI found out, much to its chagrin, announcing the deal size offers no guarantee, but it does help — as Berlin Hyp, Muenchener Hyp, Aktia Bank and LBBW can attest.
As the era of easy monetary policy recedes and with the macroeconomic future so uncertain, syndicate bankers will have to deploy all their wits to navigate ever more difficult markets for their issuers.