Quality over quantity: SSAs must adapt to QT era
GlobalCapital, is part of the Delinian Group, DELINIAN (GLOBALCAPITAL) LIMITED, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 15236213
Copyright © DELINIAN (GLOBALCAPITAL) LIMITED and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement
People and MarketsCommentLeader

Quality over quantity: SSAs must adapt to QT era

Quality over quantity symbol. Businessman turns cubes and changes the word 'quantity' to 'quality'. Beautiful orange table, orange background, copy sp

This week’s less than stellar SSA new issue market is no cause for panic, but the dynamic is certainly changing.

It should not be a surprise — the move out of low rates and quantitative easing has been long anticipated, but it is still a shock when the effects show up in order books for new deals.

Gone are the days when vastly oversubscribed order books were the norm. Like a much loved furry pet, order books have shed fluff as summer approaches because there is no need to compete with the biggest buyer in the same way any longer. Instead, the quality of demand will be much more important than the quantity.

To attract an order book they can be confident in, issuers may have to start paying higher concessions.

There were certainly enough tremors in the market this week for it to appear as if a renegotiation is underway. KfW acknowledged it was not too generous on pricing for its 10 year on Tuesday and had put the market to the test. To pick two other examples, Municipality Finance settled for pricing flat to guidance, while Austria saw orders plummet when it tightened the spread on its dual tranche sale.

That is to be expected when not only is the SSA market adjusting to life without a central bank vacuuming up vast swathes of bonds but also following the recent banking sector crisis, which showed the perils of rising rates.

The next test for the market will be in the shape of a new EU syndication next week. It will have to tread carefully and may shy away from a long-dated deal for something shorter and safer.

Other SSA issuers thereafter will need to choose their windows even more carefully and work to grab the attention of the investors they want to see in their order books.

Those that have prepared the most conscientiously for this inevitability will be rewarded.

Gift this article