News

Jun 22, 2023

If a summer window appears, take it

Summer is just another window like all the rest. If an opportunity to print

Summer is just another window like all the rest. If an opportunity to print appears during the bond market's Dog Days, issuers should jump at the chance.

As is usual for this time of year, banks are cramming into the market ahead of the traditionally quiet summer period. Ten firms have already hit the unsecured euro market this week, raising a combined €7.75bn, according to GlobalCapital's Primary Market Monitor.

But fatigue can set in fast. And while supply is still trickling through, demand is fickle as investors flit from one asset class to another.

Although this Tuesday's senior unsecured supply came from smaller names, despite offering higher concessions than Monday's larger sales, the outcomes appeared softer. However, the opposite was true in the covered bond market. After a softer Monday,appetite rebounded as UniCredit heralded the return of Italian covered supply.

Issuers should not be pressured over the next four to six weeks in a bid to slip into the market ahead of the summer period. Previous years have shown that the ‘summer close’ is shrinking and viable windows can now appear at almost any moment. Any borrowers looking to avoid the busy autumn rush should consider taking the dip if the opportunity appears.

It is said that bond issuance typically mirrors the childcare needs of its market participants. Traditionally, supply slows down when the kids are at home. State schools in England break up for the summer in late July, with their private peers’ starting a few weeks earlier, for instance. And in recent years, issuance has dried up around the same time. Perhaps this is a coincidence, but the data stacks up.

In 2022, the unsecured euro FIG market slowed down in July, with only two banks opting to pay a visit, PMM data show. Its summer break began a €2.25bn dual tranche bail-in senior bond from Toronto-Dominion on July 25. Meanwhile, the year before, OLB's €100m perpetual non-call five additional tier one note on July 15 heralded the start of the summer. July 2021 was a busier than the corresponding month a year later, as 10 banks raised a combined €4.7bn.

Although euro supply remained scant throughout the latter half of July 2021 and deep into August — Barclays punctuated the break with a €1.5bn holdco print on August 2— the European summer close lasted just over three weeks in 2022. The market should hope for a similarly slim quiet period this year, and should do what it cans to ensure this happens.

Summer traditionally included August, but in recent years that has very much not been the case.

Swedbank's €750m 10 year non-call five tier two on August 16 — the first euro issue after the brief break — attracted a bumper €3.5bn. Last August too offered up a rich vein of supply. In fact, more unsecured euro paper was printed in the last two weeks of August 2022 than in the whole of September — banks placed €21.45bn in August 2022, compared to €20.62bn the following month.

And although the bulk of this supply came from larger national champion names, smaller firms like Luminor and Deutsche Pfandbriefbank (PBB) also managed to slip into the market. However, despite the pair's paper not flying off the shelves, both managed to unearth enough demand to meet their needs.

Even then, the dynamics of both borrowers’ books were not wildly different to their previous, non-summer, outings. PBB's €500m November 2026 green preferred senior print was 1.1 times covered, roughly in line with the demand it attracted for a smaller and shorter €200m October 2025 tap in the same format four months earlier. Meanwhile, Luminor's €300m outing attracted €450m of demand and priced with 50bp of concession — an outcome it repeated the following January.

Last year proved that if the window is there, banks would be well placed to take it. Like in 2022, when a disruptive event shuttered the bank bond market for a large part of the spring, things have a habit of changing on a sixpence.

Bank funding teams have rushed to the market this year to make up for lost windows and to pre-empt any further bouts of volatility that could emerge over the next six months. But in doing so they risk swamping the market.

Unfortunately, no treasury head has a crystal ball: funding teams have as much visibility on the latter half of the year as the rest of us. For them the stakes are high, picking the right window and maximising yield is key. After months of stop-start issuance, if the market aligns and a window appears during the summer months, then why not break from tradition and print? After all, who needed a holiday anyway?