BMO Capital Markets

On Tuesday, Bank of Montreal (BMO) issued the largest sterling covered bond from an overseas bank in almost three years at the tightest spread of any sterling covered bond in over two years. The level BMO achieved was far cheaper than would have been possible in euros or dollars.

A call by US Treasury secretary Steven Mnuchin this week to lessen the capital burden on banks had a bigger effect on US rates than a well telegraphed Federal Reserve target rate rise, creating some breathing space in long end swap spreads. That could ease long dated public sector bond issuance, but with euro market offering enviable duration funding, there may not be a queue of borrowers ready to print, writes Craig McGlashan.

Kommunalbanken built a doubly subscribed book on Tuesday for a long three year dollar deal that bankers said should give confidence to the market after a similar trade from KommuneKredit two weeks ago fell short of full subscription.

A pair of SSAs are set to nip in with dollar deals ahead of a US Federal Open Market Committee meeting on Wednesday at which investors overwhelmingly expect a target rate rise — although the strength of that expectation has dipped slightly.

KfW is the solitary SSA issuer out in dollars so far this week, and it is sticking to the very short end with an 18 month deal, a week before a US Federal Open Market Committee meeting at which investors overwhelmingly believe it will raise its target rate.

There was just a smattering of public sector dollar deals this week — but a wide difference in how they fared.

Public sector borrowers are aiming for the short end of the dollar curve, as swap spreads in the area hover around the spot in which they started 2017, having dropped sharply from the year’s highs hit in March.

Volatility late in the week failed to dampen a scorching few days of public sector dollar issuance, auguring well for more expected supply in the currency next week. Four issuers — some of which came this week to avoid other trades pencilled in for next week — were able to price deals at tight levels, with some coming through their curves.

Public sector issuers “can do whatever they want” in a rampant dollar market, with investors ploughing into books despite deals pricing close to or flat to their curves.

Public sector borrowers are rushing back into dollars after a quiet few weeks for the currency, with a trio of issuers taking indications of interest for Wednesday business.

Rating: Aaa/AAA/AAA

The Asian Development Bank on Wednesday hit the $4bn mark for the first time with a dollar benchmark, taking advantage of a dearth of supply and offering a bit of juice to harvest a hefty amount of cash.