The Federal Reserve’s announcement last Wednesday that it would not start tapering its Quantitative Easing policy prompted a string of deals from established and inaugural emerging market issuers — and rightly so. Yields fell, spreads tightened and risk appetite returned.
Everyone was going to wait until after this event anyway before committing to deals, but some bankers have been claiming that successful deals that have come since the FOMC announcement have all been down to their exceptional market judgement. They are taking credit for a rally they had no control over.
Most economists had predicted a $10bn-$15bn reduction in the Fed’s asset purchases. Bankers’ claimed that such a move was entirely priced in to the fixed income market before last Wednesday. Therefore, they cannot have been expecting the subsequent rally.
Issuers that waited until after the FOMC meeting took advantage of a market where EM spreads had just tightened 20bp-30bp. But this was luck, pure and simple.
If an experienced credit decides it can take or leave the funding and the wait is worth the risk then so be it. But both borrowers and debt bankers should be honest about the risk and the degree of luck involved in such an execution strategy.
Bankers touting the pricing they achieved on Thursday as entirely down to their skill risk misleading inexperienced issuers into thinking that they should be waiting for a random rally to tilt conditions in their favour.
They should not.
The strategy of roadshowing and waiting for the first stable window is tried and tested, and worked this week. But sudden rallies are rare, and outnumbered by days where conditions are stable.
In turn the stable days have often seemed in short supply themselves during the crisis era.
It is unwise for borrowers to hang about on the sidelines hoping to catch a rally in which to issue, especially if they are depending upon advice from bankers to do so.
Emerging market issuers will need balls of steel if they are going to be taken in by bankers claiming to possess ones made of crystal.