Banks piled into the US high-grade corporate bond market again on Wednesday, providing five of eight deals on offer as the asset class continued its roaring start to 2017. A day after 11 borrowers kicked off the new year with nearly US $20bn of new debt, with six banks among them, the second trading day of the year saw another robust menu of trades.
Citigroup, Credit Suisse, National Australia Bank and Lloyds Banking Group announced senior bonds, while Bank of Montreal jumped into the primary market with a covered bond. Ford Motor Credit and Toyota Motor Credit Corporation are also selling senior debt, while American Airlines is offering an EETC pass-through deal to finance the purchase of new aircraft.
Market participants said issuers were trying to get ahead of any potential volatility later in the month around the time of president-elect Donald Trump's inauguration on January 20. "Anyone who has a decent-sized deal is trying to get out in front of the market right now," said one investor. Citigroup, which also hit the market before earnings in 2016, announced an 11-year non-call 10 fixed-to-floating rate note and a three-year fixed and/or floating bond.
The 11NC10 is the first of the recent wave of callable bank deals to use a fixed-to-FRN structure. It should lessen the cost of the call option, said a banker away from the deal. "It avoids them having to pay any incremental premium for the call option," said the banker. "Once you strip out the interest-rate risk, the value of the option is less meaningful."
At IPTs of T+162.5bp, the 11NC10 offers around 25bp of concession compared to Citigroup's 3.2% 2026s, which were trading at G+130bp. Callable deals are partly designed to ease the cost of complying with Total Loss Absorbing Capacity rules. Late last year, the Federal Reserve and the Bank of England confirmed those deals would receive the intended benefit under their respective interpretations of the global TLAC guidelines. Lloyds is offering five and 10-year bullets through its holding company, despite seeing a strong reception for the first UK bank callables from Barclays and Santander UK on Tuesday.
A banker on the deal said Lloyds, which has only issued one US dollar holdco deal so far, was considering callable structures but that a bullet was more cost-effective. "For now the bank felt the bullet structure enabled it to continue the buildout of its holdco curve without reverting to the callable structure," the banker said. The bonds are being offered at IPTs of T+130bp area for the five-year and T+160bp for the 10-year. The bank's 3.1% 2021s holdco bonds, issued the week after the UK's Brexit referendum in 2016, were trading at around G+100bp, according to MarketAxess.