International Finance Corporation brought its first sterling transaction since November 2022 last week, a £600m three-year note that after a relatively slow start ended up with good demand.
The transaction was the only public sector trade to emerge for pricing last Monday, though it was subsequently followed by the African Development Bank in sterling and CDP Financial and the World Bank in US dollars.
IFC's leads, Barclays, Citigroup and TD Securities, started marketing that issuer's July 2026 at the 64bp area over the 1.5% July 2026 Gilt for a benchmark size.
The supranational opted for a shorter tenor after a disappointing response to a £400m seven-year from peer Inter-American Development Bank the previous week.
"The longer end of the sterling market tends to be dominated by EIB and KfW and you possibly get a different reception if you're a less liquid, smaller name," a senior SSA syndicate banker said. "If that's the case, the short end tends to be quite receptive."
The short end of the curve worked well for the Asian Development Bank, which printed a £1bn two-year earlier this month.
"All these sterling trades are more or less the same, they're a bit slow unless you pay up and get investors to think the deal looks attractive, whether it's against the issuer's own curve or another currency," another senior syndicate banker said. "I think in the case of EIB, they hadn't issued for a while and they have a good following, while ADB paid up versus US dollars and could have got much better funding costs there."
In the case of IFC, the transaction represented a small saving compared to US dollars, according to the first banker.
Still, yields at the short end of the sterling curve have been something of a selling point. The one and two-year Gilt were both quoted above 5% on Monday morning, while the three-year was at 4.8%, higher than the 30-year at 4.5%, according to Refinitiv Eikon.
For some investors, however, the volatility can be too much.
"Unless there's an obvious reason to buy in primary, you might as well wait to buy in secondary," the second banker said. "Sterling investors are happy to wait until the bonds are included in the indices at the end of the month, especially when you have yields moving 15bp–20bp. It doesn't really make sense to buy in primary, you can often do better by buying in secondary."
The first book update appeared to suggest that investors were indeed not rushing in, with demand passing £315m. Lack of pricing leverage meant the leads set the level at plus 64bp, though the price certainty meant books ended up jumping to a final £810m-plus (including £25m from joint lead managers) by the time allocations were out.
"The pricing certainty helped," the first banker said. "A Monday morning in the second half of July, you're always going to have a slower lead time. Once the spread was set, it helped a few investors who had been looking at the trade cross the line and the book continued to grow from there. And it wasn't just one or two large investors, it was a healthy mix."