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Market Update

Well received AHGS issue at 10-year maturity in response to housing association demand

December 4, 2023


The Chancellor’s Autumn statement, an economic update, capital market issuance, and more in today's fortnightly.

Market update

Economic news

  • Flash PMI figures for November indicate an expansionary outlook for the composite and services sectors. The composite PMI reached 50.10 (October: 48.70), a four-month high. The flash services PMI reached 50.50 (October: 49.50), while manufacturing reached 47.90 (October: 44.30) — a four- and six-month high respectively.
  • The Office for Budget Responsibility (OBR) released its November economic and fiscal outlook.
    • Inflation forecasts were updated, now projecting that inflation will return to the Bank of England's (BoE) 2.00% target in 2025 — one year later than previously forecasted.
    • GDP growth for 2023 has been revised upward to 0.60%, from -0.20% in March. 2024 numbers have been revised downward to 0.70%, from 1.80% in March.
    • Interest rates are expected to remain higher for longer in line with inflation persistence, with OBR forecasts up by over 100 basis points since their March forecast. They expect the Bank rate will remain as high as 3.99% by 2028–2029.
    • This higher interest-rate backdrop will continue to weigh on household consumption, which will have an impact on medium-term growth.
    • Overall, the OBR's latest forecast is more optimistic than the BoE, but paints a less upbeat picture than their March estimates.
  • The Chancellor’s Autumn Statement included a number of welcome announcements for the sector:
    • The uprating of benefits to the September figures and restoring the Local Housing Allowance (LHA) to the 30th percentile will be a significant help for issues of affordability, particularly for private renters and those accessing temporary accommodation.
    • An increased size and scope for the AHGS scheme will help more housing associations (HAs) access well-priced government guaranteed funding.
    • However, the Statement was notably light on energy efficiency measures, particularly around Wave 3 of the Social Housing Decarbonisation fund, which many had hoped would be brought forward.

Sterling rates markets

  • Rates have come down from the levels seen at the end of October, now up to 40 basis points lower than their recent peaks (20/10/2023).
  • Over the past fortnight, we have seen the long end of both swap and gilt curves rise by between 10 and 15 basis points. Shorter rates have remained reasonably well anchored, leading to some curve steepening with spread between 10-year and 30-year gilts now at 52 basis points — nearing the highest levels seen since mid 2021.

Source: Bloomberg

Source: Bloomberg, Chatham Financial

Capital markets — Sterling issuance

  • AHGS (Aa3 Moody’s) priced a 10-year £350M issue (£93.5M retained) at a spread of G+55 bps. It priced at par with a yield of 4.82%. The bonds have traded well post-issue, and are now marked at G+50.6 bps for a yield of 4.72%.
  • IPT was G+60–65 bps, with guidance tightening to G+55–58 bps.
    • The issuance spread represents a premium to secondary levels on the AHGS 2053 issue but is reflective of recent primary market activity, which has seen issuers pay up in spread terms for shorter-maturities.
    • The differential in this case is small relative to others who have sold bonds so far in 2023.
  • This is the shortest maturity of the programme to date, with previous tranches having targeted the long end at 30 years.
    • The 10-year issue shows AHGS’s flexibility around issuance, and has been in response to housing associations seeking shorter-dated debt.
  • Earlier in November, AHGS (‘Aa3’ Moodys) sold £70 million of their 4.82% Guaranteed Secured Bonds due 2053 at UKT+43. This represents an all-in rate of just under 5.25%.
  • As part of the Autumn Statement, Chancellor Jeremy Hunt announced a £3B increase in the AHGS scheme and a widening of UoPs to facilitate investment in energy efficiency and quality of existing homes by private registered providers.

Private placements

  • Riverside Group issued a multi-tranche PP raising £365M:
    • The Baa1/A issuer (Moody’s/Fitch) issued notes to U.K. and U.S. investors, including both secured and unsecured tranches for maturities from 10 to 40 years.
    • The unsecured issuance totaled £75M at 10 and 25 years, while secured issuance raised £290M across 16 and 40-year bullet maturities, as well as an amortising 35-year tranche.

Indicative pricing

*including on cost

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This material has been created by Chatham Financial Europe, Ltd. and is intended for a non-U.S. audience. Chatham Financial Europe, Ltd. is authorised and regulated by the Financial Conduct Authority of the United Kingdom with reference number 197251.