Tuesday night at last brought good news from the Middle East, with the US and Iran agreeing to a two week ceasefire, in talks mediated by Pakistan. Iran has agreed to open the Strait of Hormuz to shipping for that period.
The news came in the US evening and European night, with major markets closed, but Brent crude immediately plunged 15% to $93 a barrel and the Nikkei 225 stock index shot up 4.5% at the open as this article went to press.
This time the emotion sweeping markets is relief, but many times over the past 40 days it has been alarm — even on Tuesday April 7 as President Trump amped up his aggressive threats to destroy Iran's civilisation if it failed to comply with his 8pm Washington time deadline to open the Strait.
Almost everyone hopes the ceasefire opens a path to ending this devastating war. But that is very far from guaranteed. According to Iran's state broadcaster the country's 10 point plan for agreeing to the ceasefire includes "full payment of compensation for reconstruction costs to Iran".
While the White House says Israel has agreed to the ceasefire, it has made no statement itself.
The volatility across financial asset classes unleashed by the war in the Middle East is therefore not finished.
Quicksand market
But bond issuers and investors have learnt much over the past six weeks. Often it has been difficult to read markets to determine the optimal timing to launch new bond deals, especially for credit transactions that are more sensitive to fluctuations in interest rates.
Yet issuers and investors have found that if are adaptable, they can work together to complete transactions with less stress.
The conditions for issuance have been difficult even when news flow might have suggested the market should be rallying.
Intraday swings — whether from interpreting the damage to economic infrastructure from bombardments or the effects of communications and messages — have made it far harder to find a stable moment to place a bond.
This happened again in Europe on Tuesday April 7 as Trump threatened a new level of destruction against Iran.
Markets opened in Europe in a fairly advantageous state for issuers, despite worsening language from both sides in the war. But sentiment deteriorated in the afternoon, before improving again into the evening.
Into this rollercoaster market three financial institution bonds were launched in euros: covered bonds from DZ Hyp and Slovakia's Všeobecná úverová banka and Belfius Bank’s €750m six year senior non-preferred bond.
The Belgian lender's bond was well received, but investors had to show flexibility to commit to it, as Trump's ultimatum loomed, bearing the risk of a steep sell-off if the war escalated.
Investors are cash-rich and, despite the rise in expected interest rates caused by the war, they fundamentally remain eager to be invested in credit. They will buy deals, as long as they are compensated with new issue premium.
Belfius’s trade and the numerous FIG and corporate bonds launched since March have demonstrated that willingness.
Take your time
Issuers, too, can adapt in this market — and not just by offering higher concessions. They can also launch trades later in the day than is customary.
An early start, often before 9am CET, is usually considered advisable, to catch investors at the start of their days and maximise the deal's chances of gaining their attention.
Starting later, in a difficult market, might seem to go against common sense, and to increase risk for the issuer.
But issuers have shown that, even if the first syndicate call of the day tends towards 'no go', they can take a deep breath, set aside that caution, and change their mind a little later. If they go ahead with a deal, like as not investors will be flexible too, and give them the benefit of the doubt.
Investors welcome understanding issuers — in other words, those paying concessions sufficient to offset volatility.
This was clearly evident in the FIG market on Monday March 30, when ING Bank started marketing a five year covered bond after 10am CET.
Earlier that day, the lead managers had concluded the market was so bad their recommendation should be not to issue. But little more than half an hour later, the tide turned and the deal was launched. It got a €3bn book, the largest for a covered bond since the war had begun, and ING placed €1.5bn.
ABN Amro showed the tactic worked again the next day, by intentionally launched its senior preferred green bond “later than usual”. Starting marketing at 9.50 CET led to a €3bn book and a €1.25bn deal.
Market conventions exist for a reason — but sometimes the time comes when they need to be broken.
It should be no surprise that the tough market conditions of a war have forced issuers and investors to rethink traditions. The question is: will they take what they have discovered and keep using it when markets return to something more like normal?