The last of the summer lulls
The seasonal shutdown of the primary bond markets is a relic of a bygone era
Ah, summertime — a six week period when corporate bond market participants are more likely to be looking at a piña colada than secondary price movements. At least, that’s the belief. The facts indicate differently.
Investors are sitting on cash and are desperate to put it to use, particularly at the longer end of the curve where they hope to lock in higher yields before rates start falling.
A look at neighbouring markets shows the sort of heights that can be reached by borrowers that put a deal together in the depths of summer.
Last August, Berlin Hyp got €4.5bn of demand for a €1bn covered bond, while SR-Boligkreditt issued its largest ever such deal. The latter was all the more impressive because it is a Norwegian name, and everyone assumed that the entire Nordic investor base logs off for summer.
But issuance windows have become more defined and shorter than they have been for a decade. It is baffling to think that serious borrowers might consider the entire summer to be a no-go, especially when there are eager buyers waiting to throw cash at them. This is even truer for the biggest issuers, for whom paying a slightly larger concession in one deal makes little difference to overall borrowing costs.
There is little reason why the market cannot sustain a number of deals each week during the summer, even in August. Volumes will surely creep up.
The argument has always been that there are fewer investors at their desks so deals are harder to place. Firstly, previous summers have shown that simply isn't the case. Secondly, more investors now work remotely, meaning, for better or ill, no buyer is ever really away from the desk.
Bookrunners should have a solid idea of how much issuance their market can take in any given week, even in the summer months. Simply deferring to conventional wisdom without testing its assumptions is not providing a valuable service to fee-paying borrowers.
There is strong evidence that deals are there to be done this summer. As for the idea that there is no one around to buy them? Give me a break — just not the summer one.