Bankers are recommending that the European Financial Stability Facility issues a short-dated bond if the supra is determined to visit the market this week as per its schedule.
The Aa1/AA/AA rated European Union bailout mechanism last week sent RFPs to a selection of banks for a transaction scheduled for this week, in the midst of a Bund sell-off that left some bankers wondering if it was advisable to issue at all.
Keeping that volatility in mind, several banks suggested a short-dated deal – with the suggested tenor varying from 18 months to five years.
“The short end is relatively stable: much of the volatility last week was in the 10-year and 30-year space,” said one SSA syndicate official.
Two other bankers said they had pitched short-dated bonds, one for a tenor of between 18 months and two years and the other for a tenor of up to five years.
They did not rule out other options.
“If they want to do a long-dated bond, I think the best option would be to tap the 2045s. I think there will be demand, especially given that yields have backed up a little recently,” said one of the bankers.
The EFSF 1.2% February 2045s, issued earlier this year, has seen its yields rise 67bp since April 21 and were quoted at a bid yield of 1.37% at 1100 BST on Monday, according to Tradeweb prices.
However, all the bankers warned that this is a challenging time to come to market in the wake of the Bund sell-off over the past fortnight or so.
“Yes, there has been a back-up in yields after the sell-off, but if it is anything like as volatile as last week, investors are going to be hard put to look at anything,” said another syndicate official.
The issue is made slightly more difficult by the Eurogroup meeting scheduled for Monday and the Ascension Day holiday in parts of Europe on Thursday.
“I think we need to see a couple of days of stability before the deal – but the only window this week is a Tuesday announcement for Wednesday pricing, so that is a slight issue,” said the first syndicate banker.
