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SSAs should wake up and seize the Swissies

Switzerland, Valais, Zermatt, the Gornergrat,moon setting over the Matterhorn at dawn

Tight deals are available for funders looking for diversity — and SSAs should take note

The recent run of SSA deals have shown that the Swiss franc market is back as a viable source of funding for top quality tight names. And although a number of funders have already dipped their toes back into the market, others would be remiss not to follow.

Rising swap rates and tight local benchmark paper — plus investor appetite for repo eligible paper — have aligned to make the Swiss franc attractive for even the tightest SSA borrowers to diversify.

Sure, the Swiss market is not known for size — no foreign SSA funder has raised more than Sfr500m ($552m) since 2015. But, any issuer hoping to take size should not consider tapping the Swiss franc and stick to larger markets instead. The far deeper dollar and euro markets, for example, offer ample opportunities to seize size.

But for a programmatic and regular funder they do not offer diversification.

The Swiss market, on the other hand, does. Most Swiss investors will not take part in a dollar or euro benchmark, and will instead focus solely on issuance in their home market.

Like other niche currencies, the Swissie offers borrowers the chance to tap an investor base rarely touched by their regular funding. And if the pricing lines up, why would they not jump in?

Swiss franc swap rates have risen rapidly over the last 18 months. The five year Saron swap, for instance, has climbed from minus 1bp in January 2022 to 196bp on Tuesday — levels not seen in over a decade. As a result, incredibly tight funders, like foreign SSAs, are able to price at acceptable levels while still offering returns for investors.

Furthermore, domestic high quality liquid paper has tightened significantly in recent weeks, making previously tight SSA names not look too pricey anymore.

Pfandbriefzentrale — which issues covered bonds on behalf of the cantonal banks, and is considered a government proxy — repriced the high grade segment with 2028, 2032 and 2037 bonds at spreads of 5bp, 6bp and 7bp through Saron on May 31.

Meanwhile, fellow collective covered bond issuer Pfandbriefbank came with its own 2032, 2040 and 2050 prints on Tuesday, which landed at 5bp, 6bp and 12bp through Saron.

Last week's minus 9bp seven year print from the Asian Infrastructure Investment Bank does not look too rich when compared to the minus 5bp spreads offered by the two shortest covered tranches.

Of course — all look great compared to the exceptionally tight Swiss sovereign curve.

The yields the sovereign offers are a far cry from what even the tightest SSAs can return. The Nordic Investment Bank’srecent five year print landed 24bp through Saron but still offered a 1.4875% yield — almost 60bp more than the equivalent point on the Swiss govvie curve.

And unlike in euros or dollars, there is a dearth of high-quality domestic paper eligible for repo in Swissies.

This year for instance, aside from the regular Pfandbriefbank and Pfandbriefzentrale issuance, just over Sfr960m of repo eligible paper has been issued by domestic funders, according to data from the Swiss National Bank. This data does not, however, include the recent Nestlé trade, which is still to settle.

This pales in comparison to the Sfr5.3bn placed by foreign repo eligible issuers. And although the bulk of this — Sfr3.5bn — has been issued by covered funders, SSA borrowers have still hit the market in size.

And of course, there is no 800-pound sovereign gorilla swinging around the Swiss market. The Swiss sovereign hits the market monthly but vary rarely does it take size, printing, so far this year, at an average of roughly Sfr1bn in a single shot.

Aside from the monthly govvie auctions and covered bond auctions, high quality issuers do not have to worry about going head-to-head with a far more liquid borrower, like they would with the EU or Germany in euros, for instance.

Investors are chomping at the bit to gain exposure to foreign high quality liquid assets at attractive levels compared to domestic equivalents. And while these tight conditions for diverse funding persist, top quality SSA borrowers should make hay while the Swiss sun shines.