Covered bond issuers have historically been reluctant to print deals on the same day as a major central bank is announcing an interest rate decision, for fear of being wrong-footed by a rogue outcome or strong market reaction and having to sit there as the deal falls apart before their eyes.
But this convention is being challenged.
This week, UniCredit Austria and Caisse de Refinancement de l’Habitat issued in euros on Thursday as the Bank of England held its interest rate meeting, and Mediobanca issued on Wednesday, also in euros, ahead of the much-anticipated debut of new Federal Reserve chair Kevin Warsh, who also held US rates.
While none of these deals were blowouts, they were all perfectly fine, tightening by 5bp-6bp through execution to offer new issue premiums of 1bp-3bp, which is pretty standard at the moment.
Bankers on the deals attributed any lack of lustre more to “investor fatigue” after a few weeks of heavy covered bond issuance than the fact they were issued on the same day as interest rate decisions were being announced.
Indeed, a syndicate banker on the Mediobanca deal went further, suggesting central bank days were actually a good option for covered bond issuers which might struggle to turn investors’ heads on an ordinary day when two or three larger deals from regular issuers were on the screens.
Of course, there are a few basic rules that can mitigate your chances of coming unstuck.
It is no coincidence that the three lenders issued in euros when the Bank of England and Fed were making their calls. Any shock from those central banks would have had a less direct effect.
It’s also smart to keep the trade simple by limiting the size to a benchmark (like CRH and UniCredit Austria) or even a no-grow like Mediobanca. A nice, safe tenor helps too, like UniCredit Austria’s six year or CRH’s seven year.
Another trick to lessen any fallout from the rate decision is to get the trade done quickly, before the central bankers have even come out to speak. That is often helped by a fast start in the morning and early book update.
With careful management, central bank days can offer fine weather for issuers brave enough to take the plunge. More issuers should reach for their goggles and Speedos.