Banks Lead New Issue Market Thaw

After a considerable period of zero activity new issue bond markets have reopened this week with a flurry of deals in the US and now in Europe. As usual it has been frequent high quality borrowers reopening the marketplace, and they have done so with confidence from their syndicate bankers that attractive pricing will result in successful transactions.

The new supply has been met with considerable demand, which indicates investors are now more comfortable with their cash balances – not the case last week – and suggests a much more balanced bond market. The new issue allocations have shown very strong participation from the traditional asset manager community, which we would view as positive.

The banking sector has been at the core of this new issue pipeline, with two benchmark deals on Wednesday from Lloyds and HSBC. Lloyds printed €1.5bn of six-year non-call five senior non-preferred notes at 375bp over swaps, and HSBC Holdings issued a $2.5bn 10-year senior unsecured deal at 410bp (both are rated A+ by Fitch).

Barclays has followed suit this morning with a new euro five-year non-call four benchmark, with initial price talk at 410bp over swaps, though we doubt the final print will be this wide.

The coupons being offered on these highly rated senior bank deals are actually similar to levels at which Coco bonds were being issued earlier this year. Senior bonds such as these would typically be far closer to risk-free rates, and as such this looks like an opportunity for investors to improve portfolios with high quality debt at spreads that may well tighten materially over the medium term.

We would expect more new issuance to follow from financials and others. As is usually the case when a market reopens, the early deals tend to trade the best, so investors will be thanking these early banks for paying up and unfreezing the market.