Swiss francs

  • 10 Sep 1998
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* Nederlandse Waterschapsbank NV

Rating: Aaa/AAA

Amount: Sfr150m

Maturity: October 29, 2009

Issue price: 102.80

Coupon: 3.5%

Launched: Wednesday September 9

Lead mgr: ABN Amro

Bookrunner's comment:

We had seen quite good demand at the long end for a few days and so thought about launching a long dated deal. We found that institutions and funds were a bit overweight in medium term maturities and were looking to extend their duration.

When we saw an opportunity to bring a new long dated issue to meet this need we did so with this 11 year transaction. We fixed it just ahead of the rate cut in Japan so the market was pretty favourable. Rates in Switzerland came down and made this bond look cheaper.

It was launched back from where the borrower would normally come to the market, at around bid swap less 7bp to 8bp to investors, although the swap rate around 11 years has to be interpolated.

Since launch swap rates have come down even further and the bond is cheaper versus swaps, but it is inside fees and has not traded outside the full fees of 2.75. The issue will sell out in a few days.

The only thing you can sell at the moment is top credits. Selling anything below triple-A is impossible as good double-A names would have to come to the market at levels that would not reflect their quality.

Nederlandse Waterschapsbank is among the best credits in Europe and if it has to come at around bid swap minus 8bp, it is clear that lesser names are going to have to come at prohibitive prices.

Market appraisal:

"...timing wise this was not bad as swap rates were falling but this has not performed at all. It is still a fact of life that people are wary of the market. This has widened 5bp against swaps and on the bid side it is trading outside fees -- although that is not unusual in the current environment.

Theoretically the 11 year maturity should be interesting for institutions with yields so low, but institutions just aren't active. Additionally, the Sfr150m issue size is too small for accounts that prefer more liquid deals. If institutions are going to buy something they would rather buy Italy. Even if this had been priced 5bp wider against swaps it would not have sold."

"...we liked this. It was a good idea to bring a top quality 11 year issue as investors are willing to go further along the curve to get higher yields. The spread was deemed fair by investors, if not cheap.

It is just a shame that it wasn't for Sfr300m as that would have had more appeal to institutions.

This hasn't performed very well as swap rates have fallen but only top quality, more liquid deals are following swaps. While Rabobank widened around 10bp when swaps moved, Italy only widened around 3bp."

"...this was relatively cheap compared to where the borrower would normally tap the market -- about 10bp wider given the all-in for the borrower of around Libor minus 6bp. On the surface the deal therefore looked cheap.

However, it was expensive considering the difficult market and the price has hardly moved while the 10 year swap rate has fallen. Against swaps it has widened about 5bp and not much paper is getting placed.

The 11 year maturity is also unusual and this isn't the time to try such a tenor as institutions are sitting on the sidelines waiting until the market shows a clear direction.

The big players are absent from the market and there is very little depth to demand, with people concentrating on swaps, futures and government bonds."

Domestic issuance:

* Emissionszentrale der Schweizer Gemeinden

Amount: Sfr143.2

Maturity: September 30, 2008

Issue price: 100.10

Coupon: 3.375%

Launched: Thursday September 10

Joint leads: Zürcher KB (books), Swiss Cantonal Banks, RBA Zentralbank

* Kantonalbank Baselland

Amount: Sfr150m

Maturity: October 15, 2006

Issue price: 101.50

Coupon: 3.5%

Launched: Tuesday September 8

Lead mgr: Kantonalbank Baselland

Market round-up

Investors could take their pick on reasons to be bullish on Swiss government bonds this week: the Swiss franc hit highs against the dollar and the Deutschmark; Russia and Latin America continued to teeter on the brink of collapse; Japan cut interest rates; Federal Reserve chairman Alan Greenspan hinted at a peak in US rates; and after opening the week strongly, stockmarkets faced renewed turmoil.

The September Confederation future contract benefited most from the friendly scenario, rising from last Friday's close of 125.83 to end Thursday at 127.20. Swap rates fell and the yield on the 4.25% January 2008 government bond fell to 2.748%.

Early in the week the Swiss franc hit a five month high against the Deutschmark of Sfr0.8177/DM, before surging to a 10 month high of Sfr1.3914/$ on Thursday. A 5.6% fall on the Swiss Market Index on Thursday only served to underline the bond friendly environment.

However, the failure of foreign bonds to benefit from the rally in underlying markets was highlighted by the poor performance of the only new issue of the week, a Sfr150m 11 year deal for Nederlandse Waterschapsbank.

Syndicate officials said that most institutions were absent from the market and that while swap rates had fallen by around 3bp the deal had widened by 5bp against swaps.

The two domestic issues of the week fared better, although even in the domestic sector demand remains subdued. Bankers said that even though a Sfr150 eight year issue for Kantonalbank Baselland was attractively priced, buying was slow.

Launched on Tuesday at a spread of around 60bp over government bonds, bankers said that the paper offered good value. The bank is well regarded, being owned by Kanton Baselland, which is considered one of the strongest cantonal credits.

Initial sales were slow and the spread widened to around 65bp over. Nevertheless, syndicate officials said that sales picked up on Wednesday and that by Thursday most of the paper had been placed.

A Sfr143.2m issue for Emissionszentrale der Schweizer Gemeinden on Thursday was more warmly received. Bankers said the pricing of 56bp over government bonds was fair and the spread tightened to 53bp over on the back of institutional buying.

One banker said he was pleased with the performance given his initial doubts about the deal. The 10 year issue was launched with a coupon of 3.375%, despite coming just two days after the Kantonalbank Baselland eight year issue that carried a 3.5% coupon.

Additionally, after the strong rally on Wednesday, some bankers had expected that the market would take a breather.

An official at lead manager Zürcher KB said that launching the bond at such an attractive spread -- almost double what it would have been early in the year -- had enabled the borrower to overcome the lack of demand for paper.

"If you want to have a successful deal," said the ZKB official, "then you have to launch it with an attractive spread and make sure you place the paper within an hour or two of launch so that there is no paper floating around.

"I am convinced that even though the spread was so high, had we launched it just 5bp tighter there would have been far less demand," he added. "Borrowers have to get accustomed to these wider spreads."

  • 10 Sep 1998

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