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Market Update

Sterling issuance surges amidst rent settlement extension and monetary policy caution

April 8, 2024


Rent settlement until April 2026, rising gilt yields, SONIA swap curve fluctuations, and more in today's fortnightly.

Market update

Capital markets — Sterling issuance

  • Capital markets issuance for housing associations (HA) has started to pick up after a slow start to 2024.
  • BPHA (A+) sold £75M of retained bonds under its existing 2044 issue.
    • This was the first own-name public bond issue since Sovereign Network in January.
    • IPT was at G+100–105 bps, which represented a 15 bps NIP to the secondary levels on the issue at G+88 prior to announcement.
    • Due to strong demand, guidance was revised to G+90 (+/- 3bps) with final pricing at G+87.
    • Pricing was slightly inside secondary levels on the existing issue, representing a one-basis-point new issue discount. It is reasonably uncommon to see new issuance price inside secondaries — underlying the strength of investor demand, a good credit, and efficient execution on the deal.
  • EMH (A) obtained funding through AHGS in March by tapping the Saltaire 2033 bonds. The issue achieved a spread of G+48 and yield of 4.52%, providing EMH with £74.5M of new debt.
  • Paradigm (A+) priced £250M of 20-year sustainability-linked bonds at G+87 to yield 5.295%. IPT was at G+100-105, with guidance at G+90.
    • Orderbook was reported at £575M. Their 2051s were trading at +71 pre-issue, representing a NIP of 16 bbps. £100M has been retained for future sale.
  • Platform (A+) priced £250M of 26-year sustainability-linked bonds at G+83 to yield 5.342%. Initial price talk was at G+100 with guidance at G+85. The orderbook was reported at c. 3x oversubscribed.
  • These recent pricing points confirm strong issuance dynamics for housing associations, both across public and private. Execution risk has fallen, reflected by good bid-to-cover ratios, and a number of pricing points at spreads below 100 bps underline the ability for HA borrowers to tap into tight secondary pricing.

Rent settlement

  • It has been announced that the existing rent settlement scheme will roll over until April 2026.
  • This means that social and affordable rents will continue to be capped at CPI+1 for an additional year.
  • This will give HAs some certainty as they are developing and finalising their business plans over the next couple of weeks.
  • The guidance will be welcomed by housing associations, investors, and stakeholders alike as it provides certainty.

Sterling rates markets over the past fortnight

  • Gilt yields have increased by c. 10–14 bps over the past fortnight.
  • The SONIA swap curve experienced similar movement, rising across the curve by c. 7–12 bps.
  • Rates surged as markets opened post Easter weekend, with a c. 20 bps rise in gilt yields and c. 15 bps increase in swap rates from closing on Thursday, 28 March until closing on 02 April.

Economic news

  • In its March meeting, the Monetary Policy Committee (MPC) kept the bank rate unchanged at 5.25%.
  • The Committee voted eight-to-one, with one member voting for a 25-basis-point cut.
  • The sentiment continues to reflect that the MPC needs to see further evidence of underlying inflationary pressures ease before loosening monetary policy.
  • This was despite headline CPI coming in at 3.40%, below the Bank of England’s (BoE) expectation of 3.70% for the first quarter of 2024 set out in its February report and the lowest reading since 2021.
  • Core CPI, closely monitored by the BoE, came in at 4.50%, down from 5.1%, where it has consecutively sat since November 2023.
  • Markets are now expecting the first rate cut to take place in June. Prior to the MPC meeting, markets had been pricing the first rate cut in for August.
  • Markets are now pricing in the first European Central Bank (ECB) and Fed rate cuts for July.

      Source: ONS

      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.