Fresh from a dual-tranche transaction priced in mid-February, Mizuho Financial Group was back in the European market on Tuesday but this time with a debut £500m June 2028 trade.
Global banks with large funding programmes have been relentless in hitting bond markets since the start of the year, making the most of the conducive market backdrop to chip away at their needs. But for those that have already used the US dollar and euro in 2023 like Mizuho, they are now turning to currencies that offer diversification, albeit in a smaller size.
"Banks have to hit as many currencies as they can," said a senior FIG syndicate banker away from the trade. "If you have to get stuff done and believe this backdrop won't necessarily last, you have to look at all avenues. While there's a bid in sterling, why not hit that market? There's a need from a regulatory perspective but there's also pragmatism from the issuers' side. A lot don't believe we won't be in this Goldilocks environment forever and there's clearly rates risk. Who knows what the next couple of weeks bring - issuers would rather go now than after the central banks."
The ECB is meeting on March 16, with the US Federal Reserve and Bank of England set to meet the following week.
"They did euros not that long ago so they would be looking at sterling for a pure diversification of their funding mix," said another banker away from the trade. "This is not about arbitrage, this is about not eating up your various investor bases."
Following virtual investor meetings on Monday when the Japanese lender had said it would consider a maturity between five and seven years, leads Mizuho, Barclays, HSBC, Lloyds and NatWest Markets opened books at 200bp area over the 0.125% January 2028 Gilt. Books closed over £1.1bn, including £30m of JLM demand.
"The sterling market has felt a little bit heavier of late, but Mizuho is quite different," a lead said. "It's an inaugural trade, it's a Japanese mega-bank, so the UK market doesn't have exposure to them in sterling. So that's materially interesting, it gives the trade a diversification lens. We've seen it with KBC or Caixa, they went really well because they were the first. Issuers also know that when they're opening up a new currency, it's not about the last basis point."
He added that while sterling might not give issuers huge volumes as such, it provides them with an alternative and was a natural progression for one like Mizuho.
"They've been active in euros and if you look at their longer end euros versus MUFG, you can certainly see there's a price to be paid for being more frequent," said the lead. "But they've been able to get it done well relative to US dollars - if I were them, I would be more concerned about my costs in dollars."
The transaction landed at 183bp over.
"If you look at that level on a euro-equivalent basis, you're basically 15bp back of the secondary bid side, which is for any trade that's diversification, that's the kind of number that makes sense," the lead said. "And if you look at it versus dollars, it's about 10bp inside their recent 6NC5 dollar. So arguably it's coming at a discount versus the currency they care about most."