SSA issuers have been front-loading like there is no tomorrow since benchmark issuance resumed in mid-August. It follows a pattern of issuance all year — get deals done as early as possible to avoid the risk of volatile markets later.
Within one week, the European Investment Bank has raised €9.5bn-equivalent. The European Financial Stability Facility has already finished funding for 2024 and the European Stability Mechanism might do the same next week.
Both Agence Française de Développement and Oesterreichische Kontrollbank have also already executed two core currency deals this month to wrap up benchmark funding for the year.
Even those issuers whose funding year extends beyond December are up to it. The World Bank took more than $9bn from three benchmarks on a single day last week, almost a fifth of its full year programme.
Front-loading is a strategy that served issuers well in 2024 and made perfect sense in a year stuffed full of elections and a number of other volatility flashpoints.
But now issuers may become victims of their own success — a lack of further issuance could well create its own type of risk. Issuers that have funded everything by September will leave at least a four-month gap with no fresh benchmark issuance. But this is a group of borrowers expected to come in all markets with steady, regular predictability. And bringing new issues is by far the best way to engage investors.
It also adds pressure to get a deal done in January, when every other issuer will want to be in the market. That presents a risk of market congestion and sub-optimal pricing as supply outweighs demand.
In the meantime, a lack of issuance gives cause for distortion in the secondary market — a place where there are already doubts about the transparency of pricing and what it means for fair value for new issues. That would bring additional difficulty for issuers, particularly the smaller ones.
Issuers must be lauded for the prudent approach to funding. But there is no such thing as a free lunch and one can only hope they are prepared for some of the consequences that may now arise.