January may kick off with a full working week, but it ends with the release of US employment figures. And that opening week could have come after a US rate rise in December. Or not — which could be just as disruptive, as the market is pricing in a 75%-80% likelihood of a rate rise, according to bankers.
In euros, issuers and investors may well be coming to terms with further stimulus from the European Central Bank. Speculation is rife that the ECB’s governing council could do one, some or all of the following at its next meeting in December: cut the deposit rate, extend the length of its public sector purchase programme, or add more issuers to the list of assets it can buy under quantitative easing.
This all comes as some agencies and supranationals announced funding targets for 2016 that are several billion euros higher than their 2015 needs.
So bulging is the issuance pipeline for January — and so dicey the windows available for issuance — that some borrowers are talking about specific days during which they want to access markets, never mind specific weeks.
There could easily be a splurge of similarly rated issuers coming out with almost identical trades on the same day — something that happened a few times this year, and not without controversy.
This all comes as issuers’ spreads over dollar swaps have been going one way.
On Tuesday, KfW printed a no-grow $1bn five year green bond at 25bp over mid-swaps. Its last five year dollar deal with a size of at least $1bn — a conventional $4bn June 2020 just five months ago — offered a meagre 3bp over swaps.
You have to go back to 2012 to find the last time KfW paid such spreads for a five year dollar benchmark — a $3bn October 2017 at 23bp over, according to Dealogic. And it should be noted that Tuesday’s deal was a green bond, an asset class that has arguably been commanding lower new issue premia than its conventional cousin over the last few weeks.
There is a strong sense that dollar swap spreads — already negative in as short a tenor as five years — could fall even further in January as the market tries to digest all the supply. That is only going to encourage first mover advantage — making issuers mandating on top of one another all the more likely.
Public sector borrowers could pre-empt that first mover advantage by pre-funding now. Not only might it save them a few basis points — it might spare many of their peers the January blues as well.
