The primary fixed income market has gone from strength to strength with each passing week this year and it is now at the point where almost any borrower can reasonably expect access across the capital structure.
This was evidenced in the market for financial institutional bond issuance, which took another leapt forward this week with a series of extraordinarily successful trades.
To name but a few, Julius Baer and Bankinter launched additional tier one trades that were 10 times subscribed, UniCredit priced a phenomenal senior non-preferred 30bp inside where it issued a senior preferred a few weeks ago.
And smaller banks, like Cassa Centrale Banca and Cajamar Caja Rural, managed superb results with respective trades in the senior and covered bond markets.
As with much of the fixed income space, the market for financial institutional debt has benefitted from the strong inward flow of funds that is usually associated with the start of each year.
This has been turbo-charged by a growing presumption that global central banks are almost done with raising rates and that the forthcoming economic recession will be short and shallow.
But above all else, for the first time in years, investors have genuine grounds for taking a keen interest. Negative rates and quantitative tapering have been consigned to history and the rising yield pain of last year is virtually over.
Irrespective of whether it’s a subordinated debt offer that pays equity like returns, or a short dated, highly rated covered bond that offers a safe, liquid and virtually risk-free return, buyers are queuing up. Spreads have stabilised and risk adjusted returns look gorgeous.
Faced with this, borrowers that are harbouring funding ambitions may be inclined to pause in anticipation of a potential spread tightening.
This would be a mistake.
The window is finite and before long the impact of various central bank measures will inescapably take its toll.
Tapering of the European Central Bank’s Asset Purchase Programme begins in earnest in March. A considerable proportion of the ECB’s Targeted Long Term Refinancing Operation is due to be repaid in June. And rate rises that have already taken place will ultimately crimp credit.
These golden days of fixed income will not last forever. The the most challenging names with their most challenging deals should know that the clock is ticking.