Yield-starved investors find solace in sterling

Fri Sep 9, 2016 10:51am EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Helene Durand and Laura Benitez

LONDON, Sept 9 (IFR) - Corporate and financial issuers that had shunned the sterling market for most of 2016 are returning in droves, spurred by investors' search for yield and the Bank of England's upcoming corporate purchase programme.

Six issuers raised £2.4bn on around £6.7bn of demand this week as the fightback staged by the market since the UK voted to leave the EU gathers steam ahead of the start of the BoE's purchase scheme later this month.

Investors forced out of the euro market by the tightening of yields caused by the ECB's bond purchase programme are now turning to sterling, lured by the relatively attractive yields on offer. High cash balances have also contributed to the market's renewed vigour.

"The sterling market, particularly the longer part of the curve, hasn't competed with euros, whether it was on price or demand, for a good part of 2016," said Sean Taor, head of European DCM at RBC Capital Markets.

"However, investors have been very active in sterling recently, which in turn has driven yields down and in many cases sterling is now more competitive than euros."

Aviva, the UK's largest insurer, attracted over £2.3bn of demand for a £400m 4.375% 2049 non-call 2029 Tier 2 bond this week, while British American Tobacco garnered £1.5bn of interest for a £650m 2052 benchmark.

BAT was also quick to take advantage of the US dollar market and returned the following day to print a US$650m three-year trade at a coupon of 1.625%.

"The announcement of the [BoE's bond buying] programme has repriced the market and created demand from asset managers who felt they were underinvested," said Zoso Davies, a credit strategist at Barclays.   Continued...