SSA bond market attractive choice for issuers
Bank treasuries taking advantage of demand to meet liquidity coverage ratios and regulations
The insatiable bid for supranational, sovereign, agency and provincial (SSA) paper showed no sign of fading last week, with bank treasuries snapping up longer dated deals in a bid to meet their liquidity coverage ratios and central banks looking to park cash at the short end.
The African Development Bank, Municipality Finance and NRW.Bank took advantage of the demand while locking in attractive funding, and market participants are gearing up for more supply with at least two more benchmarks expected this week. Kommuninvest and the Asian Development Bank have been rumoured to be planning five- and seven-year deals respectively.
The dynamics playing out in the US dollar market are making it a compelling choice for issuers, especially as the tightness of euros is making issuance there potentially difficult.
The European Central Bank's decision to cut rates by 10 basis points earlier this month has had an immediate impact on the short end of the curve.
"In most core markets, short-end government bond yields are now firmly in negative territory. A similar pattern can be observed in EIB (European Investment Bank) and KfW (German development bank) euro bonds in maturities up to 2-1/2 years," Barclays analysts wrote in a recent note.
"This makes euro-denominated supply at the shorter end of the curve more problematic for the agency and supranational issuers."