High subscription ratios and negligible new issue premiums have become commonplace in European FIG issuance this year.
From covered bonds to AT1, buyers have been happy to take on FIG risk across the credit stack.
Strong bank earnings over the past few weeks have cemented investors’ confidence in the asset class.
Even the downgrade of Deutsche Pfandbriefbank after concerns about its exposure to US commercial real estate exposure failed to dent momentum in the European primary market.
At the same time, expectations that interest rates have peaked have driven investors to lock in higher rates while they can, making it an issuers' market.
But nowhere has this been more evident than in higher yielding FIG bonds that can stretch to paying a spread of 200bp over swaps, or more.
This proved true for Banca Ifis this week, an Italian bank headquartered in Venice, which increased its senior preferred offering to €400m from €300m. With a final spread of mid-swaps plus 290bp, orders finished above €2.3bn. Such a book size has not always been the case for Ifis — the last time it was in the public market, in 2023, it only just covered a €300m deal.
Life is not always so good in the bond market for smaller, lower rated banks. Given the risks that lie ahead this year, there is no room for complacency — it is well documented how many countries have elections in 2024, for example, culminating in what could be a fractious US vote in November.
For smart FIG issuers — especially those that can offer higher yielding bonds — the time to print is now, while investors still have risk appetite.