Banks beefing up buy-backs as sterling market anticipates bright future

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A lot of expensive bank bonds, issued when rates and inflation were high and spreads wide, have call dates coming up, meaning issuers will be keen to replace them with cheaper debt at current market prices. To do so, they may completely change how they deal with investors when they do buy-backs.

Many of these bonds contain what is known as a clean-up call, which allows the issuer to redeem the rest of the bonds at par once it has competed a tender offer for them, but usually only if it has managed to buy back more than a threshold amount.

This puts investors into a dilemma because the price they will be offered in the tender will most likely be better than where they can sell the bonds in the secondary market and what they will get if their bonds are taken back in the clean-up call.

It's a technique more commonly used in US markets, and for sub-benchmark sized or subordinated European bank bonds. But now the stakes are being raised as the market contemplates its use in replacing expensive, benchmark-sized senior bonds from issuers that rely on wholesale bond funding. We explore what is at stake for issuers and investors alike.*

Meanwhile, the Bank of England has started to accept a wider range of public sector bonds as collateral. This will boost the bank treasury bid for sterling SSA bonds. We discuss which new issuers it might attract to the market.

Finally, corporate sterling bond issuance has been on a tear this year. We look at who has been issuing, who hasn't, and what the pipeline looks like for the rest of the year.

* in the episode we discuss the timeframe in which Unicaja could exercise its clean-up call. At the time of recording, it had not chosen to exercise the option, but a few hours later, by the time of publication, it had.