Bank of America seized its chance to announce a Green bond Friday as the US primary markets prepared for a slowdown due to the presidential election next week. Coming with a deal seemed smart given the increasing uncertainty over the outcome of the tightly contested race for the Oval Office. "If the election does not go the way we think it will, everyone will be saying Bank of America was smart to come now," a syndicate banker away from the deal told IFR.
Democrat Hillary Clinton's narrowing lead over Republican Donald Trump has unnerved markets in the run-up to Tuesday's vote, leaving bankers predicting just US $5bn-US $10bn in high-grade supply next week. Primary volume also fell short this week as markets fretted about the possibility of a Trump win, with borrowers issuing just US $10.775bn versus forecasts of US $20bn.
Market jitters over political risks in the US had US $2.495bn leaving investment-grade funds during the week ended November 2, according to Lipper data. That marks a sharp reversal from the US $1.701bn of net inflows the previous week. Even so, a relatively benign response to Friday's payroll number, which showed 161,000 jobs were created in October, provided ample opportunity for Bank of America to move forward.
Yields on the 10-year US Treasury bond fell to around 1.79% by early afternoon after hitting as high 1.83% following the payroll data, while the CDX IG-26 index was 0.2bp tighter at 73.15bp The bank's US $1bn four-year non-call three bond, which will fund renewable energy projects, launched at US Treasuries plus 120bp, some 10bp tight to initial price thoughts of T+130bp area. Solid jobs gains have reinforced expectations that a US rate hike is on the cards in December, but a Trump victory could change that if volatility makes the Federal Reserve more cautious.
Those kinds of risks encouraged many borrowers to pull deals forward last month, making for the second-busiest October ever in the US high-grade market with over US $100bn in bonds priced. Next week could bring out opportunistic borrowers if the market enjoys a relief rally on the back of a Clinton victory.