Sukuk market off to a strong start

To see the digital version of this report, please click here. To purchase printed copies or a PDF of this report, please email gloria.balbastro@thomsonreuters.com With three short words, European Central Bank president, Mario Draghi, had more of an impact on markets than any amount of positive economic data would have done for the euro...

To see the digital version of this report, please click here. Sovereign debt managers in Europe have been given the task to raise €1.76trn this year, a level that has fallen from its 2009 highs, although it still stands some €638bn above 2007 volumes. Unfortunately the debt pile is not falling fast enough to silence concerns that a heady mix of capital constraints and risk aversion is taking its toll on banks’ trading desks, stifling one of the biggest investor bases in government bonds.  Moreover, debt managers are well aware that other...

To see the digital version of this report, please click here. Market moves demonstrate a growing consensus that Europe is committed to solidarity. This logic is driving an increasing convergence between eurozone states in sovereign bond prices, as peripheral yields inch back towards the near risk-free rate implied by Bunds. The logic of convergence is especially applicable at the short end of the curve, where political commitment to Europe appears to carry most weight, said Bill Northfield, head of SSA origination at Deutsche Bank. At the...

To see the digital version of this report, please click here. While recent EU attention has focused on the Mediterranean, watchers may have missed the good news. In mid-March, Ireland, which had applied for a bailout in November 2010, was able to return to a normalised debt programme. It did so in some style and with an element of showmanship. Ireland raised €5bn through the sale of a new 10-year bond, its first benchmark bond issue since the country’s controversial bailout by the EU. The 3.9% March 2023 bond, originally intended as a...

To see the digital version of this report, please click here. For a country supposedly on the edge of political apocalypse, Italy’s bond market has held up well.  As politicians continue to try and reach agreement over the formation of a government following the electoral stalemate in February, 10-year government bond yields have snapped back to where they were before the election. Giovanni Zanni, an economist at Credit Suisse, said: “The election provided the worst possible result and yet the reaction in the bond markets was muted.” The...

To see the digital version of this report, please click here. When UBS marched out of the SSA sector in October jabbing its finger at “inflexible” supranationals, it threw into dramatic relief pressures on issuers to post collateral on swaps. The move left a bitter taste as DCM bankers watched yet another cohort of colleagues pack up their things, and syndicate desks duly warned that borrowers would have to rethink asymmetric swap arrangements based on one-way credit support annexes. A collateral shift amounts to a cultural change among SSA...

To see the digital version of this report, please click here. The European Financial Stability Facility’s €8bn blowout deal on April 9, the biggest single offering by a supranational that brought its total issuance for the year to €25bn, showed that luck and not just timing is important in the bond markets. The five-year deal remained part-guaranteed by bailed-out Cyprus, which will step out following a meeting on April 25, but given that the country is only accountable for €1.5bn of guarantee commitments, compared with €211bn for Germany,...

To see the digital version of this report, please click here. The outlook for SSA funding for the rest of the year is challenging. Barclays, for example, predicted €147bn issuance for the first quarter of 2013. In the end it turned out to be €123bn. Indeed, of the supra and agency issuers with the 10 largest funding programmes in Europe, only Norway’s Kommunalbanken (KBN) and Bank Nederlandse Gemeenten (BNG) issued a larger share of their funding programme this year than they had done at this point last year. The challenge for public sector...

To see the digital version of this report, please click here. The European Investment Bank, whose shareholders are the 27-member states of the EU, approved a €10bn capital increase at the end of June last year. This will allow the EIB to boost funding by up to €70bn or 30% a year until 2015. “Since 2008, the EIB has made a valuable contribution to the EU economic recovery plan. This capital increase will strengthen the EIB and increase its contribution to addressing investment challenges that Europe faces,” said Herman Van Rompuy, president...

To see the digital version of this report, please click here. Just two Asian issuances penetrated the murk in the first quarter of the year, raising just shy of US$1.5bn. Compare that to 2012, a year that began like gangbusters, raising US$12.8bn in the first three months, and included Mongolia’s inaugural US$1.5bn debt sale.   Then came Indonesia’s blockbuster, a US$3bn dual-tranche bond split evenly between 10-year and 30-year paper. “This deal probably nicely ties up Jakarta’s offshore financing needs,” said one Singapore-based banker...

To see the digital version of this report, please click here. When Japan Finance Organisation for Municipalities issued US$1bn worth of senior unsecured notes in September, it looked like a win-win for everyone. Established in 1957 and rejigged 51 years later as a more streamlined operation channelling low-interest capital to the country’s 1,713 municipalities, JFM was keen to mine new funding channels. Last year’s five-year, 1.5% Reg S trade, due September 2017, appeared to be the perfect solution to its needs. Overnight, the agency had...

To see the digital version of this report, please click here. In an economy built on caution, the radicalism of Bank of Japan governor Haruhiko Kuroda and his boss, Prime Minister Shinzo Abe, has taken everyone by surprise. Simply by committing himself to hitting a 2% inflation target – a rate last seen in 1997 – within two years, Kuroda has shown a remarkable willingness to break with, and learn from, the passivity and conformity of the past.  Christine Lagarde, the IMF’s managing director, said such “unconventional measures” were helping to...