Funding conditions in the bond market are excellent for borrowers from the rates world to credit.
For banks, numerous trades in euros this week, from BPCE’s rare senior 12 year to Banco Santander’s popular tier two, highlighted investors’ eagerness to buy anything and everything. It was no surprise to see issuers rushing to print while the going was good.
Research analysts predict that spreads are close to their peak and will tighten from here. That has led to issuers receiving advice to wait — especially those that want to sell long dated covered bonds — based on the view that they can save funding costs by doing so.
It's a compelling proposition but it’s important to remember the power of averaging. Banks are predominantly floating rate funders and they issue, or should, throughout the seasons and cycles.
It is better to average that cost than risk being caught off guard when markets close or demand exorbitant prices for the privilege of access.
Moreover, banks need to be able to demonstrate that they can issue through the ups and downs of a cycle. This would polish their reputation, with regulators and investors.
Instead of timing the market and risking being caught with the wrong view, banks should aim to be regular issuers. That would mean printing now — as many are — as well as later when spreads tighten. If borrowing costs do rise, they have a number of tactics they can use to mitigate that from adding ESG labels to deals, to limiting size and tapping the private placement market.
This strategy may not seem alluring or exciting but the best banks for bond investors are, arguably, the boring banks. Ask any SSA issuer what the secret is to their ability to raise billions year in, year out and, apart from top notch credit ratings, it is their ability to be dull, predictable but regular issuers.
Eye-catching, swashbuckling deals are great when they come off but for the long-term boring is beautiful.