Nederlandse Waterschapsbank cracked open the market for syndicated sterling SSA issuance on Monday, placing the first paper in almost two months, and while demand was far from unbridled, the deal should help to encourage further issuance in the currency.
“The secondary market has been marked consistently too tight to get any real demand, so, by doing this, it sticks a flag in the sand and gives [other issuers] something to work round,” said one syndicate banker.
Prior to Monday, there had been no new syndicated benchmark supply since February 8, when the UK DMO issued a £4.25bn 1.125% October 2073, although a number of taps have been placed publicly and privately.
But, in conjunction with a stabilising market backdrop following the Bank of England’s 25bp interest rate increase on March 17, NWB Bank was drawn to the market because of the levels it was offering versus euros.
“The dynamics back to euro are very important and it is a good level for the issuer, back into its home currency,” said a second banker. “The levels worked versus euros, the backdrop has been more conducive and we had seen buying in this maturity.”
Despite the fact that there were many features to recommend the deal to the buyside - for example it offered relatively large spread to Gilts and yield - books for the £250m December 2024s at the final update were only over £200m.
Bankers suggested that this partly reflected activity in other sectors.
“You had TD in sterling, you had Nestle which is a low-beta corporate, both getting massive order books,” said the first banker. “So, I would say that it suffered at the margin from all the other stuff going on around it.”
The spread was fixed at 60bp over Gilts, in line with the IPTs announced through Bank of Montreal, NatWest Markets and Royal Bank of Canada, and priced at a yield of 2%.
This is not the first time in recent weeks that an SSA has hit this part of the curve, and when compared to last week’s issuance, NWB Bank looked appealing. On March 23, KfW printed a £300m tap of its 1.375% December 2024s, with the spread versus Gilts set at 41bp over.
NWB Bank coming 19bp back of KfW is an unusual occurrence and would look particularly attractive to a number of investors, said the first banker, who added that there was no real way of deriving fair value for the new issue, given the illiquidity in the secondary market.
For a lot of investors, short-end deals in sterling make a lot of sense at the moment because of the shape of the Gilt curve. It rises steeply out to two years, and not long after that flattens and inverts in places.
“You pick most of your yield up at the front end,” said the first banker. “But there is demand further out the curve where you get more interest from the bank treasuries on the asset swap.”
Bank treasuries, central banks and outright yield buyers have all been showing more of an interest in the short end of the sterling market of late, said the first banker.