The dollar and euro markets offered reasons for optimism to borrowers and syndicate officials this week, with US markets stabilising after the previous week's 50bp rate increase and credit product in Europe attracting investors off the sidelines. Market participants are hopeful that should levels remain steady over the coming short week, borrowers may be able to take advantage of the new, albeit wider levels. Nevertheless, the dollar market remains prone to volatility. Along with the regular swings in the Nasdaq, the release of congressional testimony relating to US agencies continues to generate swings in the swap and corporate bond markets. "A year ago you started jumping up and down when you saw an 8bp shift in swaps," said one banker, "but nowadays nobody bats an eyelid." The ADB took advantage of one such move this week when it launched a $1bn five year global, the first issue in the maturity since the FOMC meeting. Launched on Tuesday, the supranational's issue was priced flat to Fannie Mae at 92bp over Treasuries and 2bp back from the IFC. However, Fannie Mae quickly regained its superior position, trading 3bp through the ADB by Wednesday. The tightening came as no surprise as on Tuesday the agency curve had been hit by the release of comments by Greenspan critical of the privileges enjoyed by Fannie Mae and Freddie Mac. The extent to which the agency market rebounded after the brief widening was demonstrated by Freddie Mac pricing a $5bn Reference Note on Wednesday that had been launched with the standard minimum of $3bn on Tuesday. "This transaction demonstrates that there is still good appetite at the short end because of the inversion of the curve and because investors are still bearish on interest rates," said a syndicate official involved in the Freddie Mac note. EIB, Federal Farm Credit Bank and GECC all took advantage of similar opportunities, tapping the two year area of the dollar curve. "Headline spreads are attractive and the absolute yields available are drawing new cash in," said a banker involved in this week's short dated issuance. Investor enthusiasm for the short end has prompted KPN to plan a Eu5bn equivalent fundraising exercise next week that will include a one year dollar floater, a two year euro floater and a three year fixed rate euro tranche. Bank of America and Schroder Salomon Smith Barney will lead manage the jumbo offering. The multi-currency offering follows similar short dated fundings by France Télécom, which issued Eu4bn and $1bn of 18 month FRNs at the end of March, and Vodafone, which raised $3.75bn of June 2001 and December 2001 floating funds at the start of May. The two transactions demonstrated that fears over the credit quality of telcos and concerns of oversupply could be overcome. KPN will also follow Vodafone's lead by including credit sensitive coupons - which also feature on Telstra's planned Eu1bn 10 year via BNP Paribas and Deutsche the week beginning June 5. Ahold's Eu1.5bn five year issue this week underlined investors' reluctance to extend past five years for lower rated credits. The A3/A- retailer, both of whose ratings are on negative outlook, dropped a possible 10 year tranche for lack of demand. The five year proved too attractive to resist for hundreds of accounts at a spread equivalent to Euribor plus 80bp. A1 rated Südzucker of Germany succeeded in raising 10 year funds, but only at more than 10bp wider than syndicate officials were expecting a week earlier. Deutsche Bahn attracted strong demand for its first issue as a rated borrower, pricing a few basis points from its curve, but the Eu1bn 10 year issue profited from the company's double-A credit quality. But while all eyes were watching the corporate market, Eurohypo Luxembourg launched the first ever jumbo in the Grand Duchy's new lettres de gage market. Priced at 51bp over the Bobl, the Eu1bn five year transaction followed months of preparation and was executed the week after the market's regulations were finalised. Bankers praised Eurohypo for balancing competitive funding levels for a new borrower with a sufficient pick up over Pfandbriefe.
May 26, 2000
