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SSAs have never had it so good — until next year

By Craig McGlashan
26 Oct 2017

Public sector borrowers have enjoyed enviable funding conditions this year, but thanks to the machinations of central banks, 2018 is shaping up to be even better.

Cartoon_1528_SSAThis year has been very much a case of drawing cheap funding in dollars for the short end, while any long end needs have been gobbled up by yield starved euro investors.

But next year, issuers may well get to pick and choose their core currency funding at any part of the curve — providing juicy investor diversification opportunities (so long as the price works, of course).

Speculation that a hawk — in the form of Stanford University economist John Taylor — could soon have the Fed in its talons bumped up US Treasury yields last week, bringing the 10 year part of the dollar curve into play for SSA issuers. Asian Development Bank and CPPIB Capital took full advantage this week, and there is a strong feeling that a first jumbo sized 10 year since July 2015 could be possible (see story on page 4).

Across the Pond, Mario Draghi and co started the ball rolling on a softening of quantitative easing by outlining plans to halve its €60bn monthly bond purchases from January of next year (see story on page 5). That could help bring up rates in the euro short end, potentially bringing investors that baulk at negative rates back into that part of the curve.

Of course, there are several political risks on the horizon — not least the mess in Spain as the Catalonian government seeks independence, as well as a scheduled Italian election in the first half of 2018.

But from a technical standpoint, SSA issuers have never had it so good — and it could be about to get even better.

By Craig McGlashan
26 Oct 2017