With the starting gun still ringing in their ears, banks have come racing out of the blocks to take maximum advantage of the opening of the January issuance window, with many aiming to take sizeable chunks out of their 2022 issuance programmes ahead of an uncertain year.
In total, investors had 16 tranches of FIG debt to choose from across the US dollar, euro and sterling markets on Tuesday morning.
"We've got US dollars going gangbusters, euros has started well and it's interesting that we've also got sterling [supply] off the bat," said a syndicate banker.
Credit Agricole wasted little time in launching the first Additional Tier 1 transaction of the year, issuing a US$1.25bn self-led perpetual non-call September 2029 transaction.
"In general, there is an expectation this year is not going to be an easy ride, so we have issuers being pragmatic and taking the market on early," said a banker close to the deal.
"The market was positively orientated today, with Treasuries stable after a big jump yesterday, so it felt like the right time to go."
The 144A registered deal priced at 4.75% on Tuesday, after being marketed at initial price thoughts of 5.125% area during Asian hours. The IPTs were later revised to the 5% area.
Most bankers saw fair value at around 4.625%, extrapolating from outstanding French US dollar AT1s.
"It's not an ideal backdrop given what Treasuries were doing yesterday, but it looks OK, so hopefully it comes to a sensible conclusion and trades well," said a second syndicate banker, away from the deal. "Valuations in AT1 are back around the tights so we don't want anything to spook investors at this stage."
One noteworthy aspect of the perpetual note was its inclusion of language stating it would be considered on equal footing with outstanding Tier 2 capital in the event that it was disqualified as AT1 capital, amid regulator concerns that banks' stack of AT1 instruments could be disqualified when legacy Tier 1 instruments move into a lower tier.
De-risking the focus
The majority of Tuesday's supply came from top tier, national champion banks in senior unsecured format, as issuers looked to make early headway towards their MREL-eligible issuance targets while conditions are attractive.
Such a deluge had been expected as many issuers have an eye on potential bouts of volatility and spread widening through 2022, with rates rises and central bank tapering on the horizon and Covid-19-related uncertainty still a factor.
Notably, many issuers opted for multi-tranche trades, with Credit Agricole offering a five-year US dollar senior preferred alongside its AT1 while UBS marketed a four-part holdco and opco senior transaction and Deutsche Bank a dual tranche SNP and Tier 2 offering, both also in Yankee format.
In euros, BPCE was out with a senior non-preferred duo comprising a six-year non-call five green bond and a 10-year conventional, ultimately printing €1.75bn, while Erste Group Bank offered both 6.5-year and 15-year covered bonds, taking a combined €1.5bn.
"People are going for size if they can and going early if they can, which tells you something about these issuers' thinking," said a DCM banker. "It's about derisking a bit."
"The theme of our macro call is there'll be some shakiness in the first half of the year, with spreads widening, then arguably if our call holds we'll see a mean reversion with spreads tightening in the second half. But do you really want to sit and wait for that and take the risk of it not happening? If you don't, you should be derisking your funding plan early."
Buffering up
The majority of Tuesday's supply came in the US dollar market, with National Australia Bank and Nomura also active, following well-received deals for Santander and Bank of Nova Scotia on Monday.
Bankers suggested many issuers will focus on the US dollar market for their first 2022 trades, reflecting the attractive conditions on offer but also in part because some completed euro-denominated pre-funding exercises late last year.
In the euro and sterling markets, issuers were seen to be taking a slightly more cautious approach on Tuesday.
"The one question we had in calls with clients was around new issue premiums and it feels like issuers are buffering up with an extra 5bp initially [in the euro and sterling markets], which makes sense," said the DCM banker.
BNP Paribas, for example, hit the screens with a self-led July 2030 non-call 2029 transaction marketed at mid-swaps plus 100bp area.
"They were starting around 25bp [back of fair value], which seems a pretty good benchmark of how the market is opening and certainly doesn't feel untoward," said the first syndicate banker.
The €1.5bn deal was ultimately launched at 83bp, on the back of more than €3.35bn of orders.
"That will push people to have more confidence in how strong the market is for euro seniors," said a third syndicate banker.
Sterling pipeline well-stocked
Meanwhile, Rabobank and New York Life surprised some market participants by reopening the sterling market on the first business day of the UK calendar, heading up what is expected to be a busy week for the currency.
"We are hearing of quite a decent pipeline in sterling in the credit space, so I certainly wouldn’t expect Rabo to be the only continental European bank to tap sterling in the near term," said the DCM banker. "That is probably why they wanted to act early, so no higher spread paying [issuer] comes along first and makes it harder for them."
Rabobank's July 2028 non-call 2027 SNP was marketed with IPTs of Gilts plus 110bp-115bp, via HSBC, NatWest Markets, Nomura, RBC and Rabobank.
The spread was fixed at 105bp before the size was set at £400m, with the final book standing in excess of £460m.
Rabobank was judged to have paid a new issue premium of around 10bp, although bankers noted it had secured a relatively attractive level versus US dollars and euros, after the bank tapped both those currencies in late 2021.
"They are effectively paying 7bp for a seven month longer call versus their recent euro transaction, so it's effectively on top of euros," said a banker at one of the leads.
Additional reporting by Sunny Oh.
Updated story: Added pricing details for Credit Agricole deal