Liquidity is a major focus for supranational, sovereign and agency bond investors this year, as rates are rising and being able to exit deals easily is a priority.
This has meant borrowers with smaller funding requirements feeling the pinch, even if they have most of the other attributes SSA investors require, such as high credit quality.
But they need not despair. Ways to secure a strong bid are emerging, even for borrowers with less traded curves.
In the last few weeks in the euro SSA market, and bleeding into this week with KommuneKredit, the green bid has been resurgent.
Austria’s €4bn green bond debut last week landed around 5bp inside where it would have priced a conventional equivalent, while bankers agreed that KommuneKredit’s €500m deal would have faced a much tougher time being placed without the green label. They put the greenium at up to 2bp.
For smaller issuers, this is good news. A €500m trade from a less frequent name is a tall order, heading into an active summer for central bank rate rises, so they’ll need all the help they can muster in the bond market.
After eurozone inflation hit a record 8.1% last month, there are even concerns that the European Central Bank will be forced into more drastic moves than it has signalled. An initial rate rise of 50bp is now an outside possibility.
Investors' margin for error is the thinnest it has been for years, probably since 2011 when the ECB last raised rates.
But, however worried they may be about interest rates, green bond investors still need deals to buy.
Actually, they really need them. Green bond issuance by governments so far this year is about a third down on last year's rate — a change from the usual green bond pattern of exponential growth.
Green issuance by eurozone sovereigns is picking up again — Germany this week became the latest name joining the spurt of issuance in recent weeks — but there should be plenty of room for more deals before investors are sated.
For now, smaller borrowers look like they can make up what they fail to offer in liquidity by slapping a green label on their deals.
Of course, this is little relief to borrowers without suitable assets or green debt to refinance. They might have to go out and create some.