BMO Capital Markets
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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.
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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.
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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.
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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.
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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.
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The European Bank for Reconstruction and Development on Tuesday equalled its largest ever size in dollars on Tuesday with a deal priced flat to or through its curve. The Asian Development Bank is set to follow in a market in which issuers are winning demand from investors starved of supply, said bankers.
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Public sector borrowers are lining up a three pronged attack on Wednesday in a dollar market that is enjoying its widest swap spreads of the year. Quebec is attempting the first 10 year dollar benchmark since the first week of the year, KfW is out in fives — a part of the curve that has also become attractive in euros — and the Inter-American Development Bank is coming at the short end.
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The African Development Bank sold its largest ever benchmark on Wednesday, in a deal which bankers said should hammer home the issuer’s “new style” to investors. Meanwhile, Municipality Finance brought its first dollar benchmark of the year.
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Municipality Finance is set to follow the European Investment Bank into the five year part of the dollar curve, as a slight tightening in swap spreads failed to deter issuer and investor sentiment for bonds in the currency.
