NEW YORK: Jitters about the Federal Open Market Committee (FOMC) meeting Wednesday put a damper on trading in Nordea Bank's debut Yankee CoCo bonds just a day after the US$1.5 trade was heralded as a well-executed transaction.
Some market participants said that the bonds would be trading at higher dollar price levels if anxiety about the Fed was not running so high.
"I think you have people worried about what the Fed is going to say later today," said a head of debt capital markets Financial Institutions Group (FIG) coverage not involved with the Nordea trade.
"That's having an effect on CoCos and the trading levels of Nordea, because you would expect that, with a US$10bn book, that both tranches would be trading a bit higher."
The Nordea US$1bn 5.5 percent perpetual non-call five-year with a 2019 call date was bid at US$99.90, and offered at par.
Meanwhile the US$500m 6.125 percent perpetual non-call 10-year with a 2024 call date was holding around par, where it priced, at US$100.65 bid, US$101.15 offered.
Some bankers away from the deal said they would have expected the non-call 10-year to trade even better, given that it was only US$500m in size and captured about US$6bn of demand.
If the Fed changes its language and indicates a more hawkish stance, the CoCos and US bank preferreds overall - will be the hardest hit asset class in the corporate fixed income market.
Previous market disruptions have shown that Bank Tier 1 perpetual preferreds behave more like equity instruments than debt when there is rate volatility.
Nordea Bank's deal was lead by Bank of America, Citigroup, Goldman Sachs and UBS, and about 400 accounts participated.
The perpNC5 was sold 31 percent into the US, 65 percent Europe, 2 percent Asia and 2 percent other, while the perpNC10 was sold 62 percent into the US, 35 percent Europe and Asia 1 percent and others 2 percent.
The type of investors who came into the perpNC5 were asset managers (66 percent , pension fund/insurance companies (17 percent ), banks (8 percent ), hedge funds (7 percent ) and others (2 percent ).
About 66 percent of the perpNC10 was sold to asset managers, 16 percent to pension funds and insurance companies, 5 percent to banks, 12 percent to hedge funds and the remainder to other.
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