The CEEMEA bond new issue market has started the autumn in rude health — but issuers must tread carefully.
Investors are keen to buy, but heavy supply and volatility mean they will back out if an issuer gets greedy and leaves no new issue premium.
There have been 13 new issuers since August 26 and trades have gone well. Order books are healthy, in some cases spectacular, while new issue premiums are slim.
But while investors have plenty of cash and are keen to put it to use in new bonds, there is nervousness — and the high supply expected means they can be picky.
Issuers should not push their luck. One that tightened a huge amount this week was Turkey Wealth Fund — by 62.5bp on two tranches. It could do that because at one point during execution it had a whopping $10bn book for a $1bn trade.
Other issuers may see that spread compression and think they can do the same, without such hefty demand.
That would be a mistake. Investors still want a premium, even if small, and wider markets have been volatile this week, particularly on Tuesday.
TWF, even though it reduced the yield by a large amount, did not price much tighter over the sovereign than its existing bonds were trading.
Spreads are still at historically tight levels for CEEMEA issuers — they do not need to squeeze out dozens of basis points from initial pricing to achieve a good outcome, even if yields and coupons may be higher than they enjoyed in the past.
It only takes one poorly received trade to spook investors, especially during volatility. There was a warning last week when Banque Saudi Fransi priced a very tight tier two — it then widened 20bp the next day.
Issuers should enjoy what is a strong market for them, but must not push too hard.