Banks did not waste the opportunity presented by the recovery in financial markets this week to fund across currencies. But it was the euro market that sprang into full force, prompting market participants to reassess their expectations for what previously looked like it would be a busy May.
After a two week ceasefire between the US and Iran was announced last week, multiple issuers hurried to lock in funding before they enter earnings blackout.
“Based on the credit primary [markets] — the war is over,” said one FIG syndicate head.
Several markets restarted this week: euro bank and insurance capital, as well as senior sterling issuance out of Europe.
The last euro bank capital deal before this week was a tier two placed by Danske Bank on February 24, according to GlobalCapital's Primary Market Monitor, while the last from an insurance firm arrived on February 10 from Portugal's Fidelidade. Meanwhile, until ABN Amro issued £700m on Tuesday, the senior sterling market had been without a fresh bond from Europe since February 13, when BPCE placed a £400m note.
Because the pipeline had still been building during this time, some bankers were expecting the European primary market to heat up a few notches from late April after major funders had left blackout. And because of the missed funding windows, some expect this could have meant market activity ramped up to a potentially 'dangerous' level for smaller or lower tier issuers, which could have faced a fight for investor attention.
“Things will get busy when national champions move into the market,” said a different syndicate manager. “Most [European] national champions announce earnings in late April and as soon as we see those numbers hitting the market, it will get busy.”
However, he added, “now the market has recovered”, smaller and less frequent issuers could face a less competitive window from now until the end of April.
“Things have somewhat changed now and there is some easing of the pressure that had previously built from a pipeline that was filling up,” said one head of FIG debt capital markets. “Now, it’s still very much a window-driven market and there is always the risk of escalation [in the Iran war], but I don’t see pressure on spreads.”
More space for smaller players
Another syndicate banker said “there will be supply in the next two weeks. Those that can print [while major banks are in blackout] won’t wait because the market got better.”
The DCM head added that the performance of recent trades suggested there was less to worry about in the market for the smaller names — well-taken deals from less frequent borrowers SR-Bank and Hypo Noe were a good example of this dynamic. The pair had the euro bank market to themselves when they issued on Monday and Thursday, respectively.
SpareBank 1 Sor-Norge (SR-Bank) attracted the largest book for a Norwegian bank senior unsecured deal, €2.6bn, since February 2023, PMM shows. It landed a €500m 3.75% April 2032 non-call April 2031 green senior non-preferred bond at 88bp over mid-swaps on Monday.
Austria's Hypo Noe, meanwhile, was just under two times covered as it sealed a €500m 3.375% April 2030 green senior preferred bond at 70bp on Thursday.
These two banks paid the now required minimum 5bp new issue premium to place their deals, although SR-Bank's premium could be spotted lower, depending on how you perceive the curve.
Bankers and issuers agreed that in this uncertain market, some new issue premium is required and even issuers printing at tight levels were leaving a low single digit concession by some estimates.
“In this market, basically 5bp is well-anchored,” said a different syndicator. “You may be surprised by the good access to size.”
Diversification matters
Moreover, the absolute spread levels still remain attractive and bankers report issuers are reshuffling covered bond funding strategies to refocus again on the senior market.
“The market is currently a touch wider than pre-Iran conflict, but not materially,” said Ruud Jaegers, head of long-term funding and capital issuance at ABN Amro, who reopened the sterling market for European lenders this week. “It’s mainly wider due to a higher new issue concession. As we typically fund through the cycle, we have to work with the market as it is and execute a deal in the best possible windows we can find.”
The Dutch lender first chose to be defensive with a €1.25bn four year senior preferred EU Green Bond (EuGB) priced on March 31. Then it saw an opportunity to print its first covered bond of the year last week, raising €1.5bn from a July 2031 trade.
Then this week, ABN further diversified its funding via a £700m two part senior outing comprising a £500m long six year EuGB bullet and a £200m senior preferred floating rate note.
Furthermore, the ongoing diversification by some issuers in the dollar market may also further ease the pressure on the euro market.
“The market pressure has lightened up, but it’s not because more issuers will do euros now due to the better market, but because a lot of issuers have already gone to the dollar market,” said a FIG banker at a bond house active in the US.
“They just switched currencies when the euro was not so welcoming,” continued the banker. “May will be busy but this won’t go into June and June will be a normal month.”
For instance, CaixaBank's $2bn senior non-preferred Yankee bond this week meant the issuer had taken out “a good chunk” of its euro funding need, the banker said.