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Market Update

No snow but a flurry of issuance

December 15, 2023


Major central banks hold rates steady, capital market activity picks up, and more in today's fortnightly.

Market update

Economic news

  • The monetary policy committee (MPC) voted 6–3 to maintain the bank rate at 5.25%.
    • Three members of the Committee voted for an 0.25% increase to 5.50%.
    • Governor Andrew Bailey reiterated the "higher for longer" sentiment, stating that rates would remain elevated for an extended period.
  • CPI has more than halved since last year, where it sat at 10.50% in December. While it has fallen materially to 4.60% (October print), it remains significantly above the 2.00% target.
  • The Federal Reserve took a more dovish stance at its meeting, while keeping target rates unchanged.
    • Fed Chair Jerome Powell acknowledged the need for caution but stated that "we are at or near the peak of the policy rate for this cycle."
  • The European Central Bank (ECB) held rates in line with the other central banks.
    • Despite concerns that the ECB may have tightened policy too much, they emphasised its commitment to keeping rates higher for longer and warned that that while inflation had dropped in recent months, it is likely to pick up again.

Sterling rates markets

  • Over the past fortnight, gilt yields have fallen by c. 40 bps from 10-years onwards. The SONIA swap curve has experienced the same downward shift.
  • The downward pressure reflects the sentiment that the Bank of England (BoE) is at the end of its rate-hiking cycle.
  • The short-to-medium end of the curve also saw significant movement, with a fall of c. 30–40 bps depending for 10-years and below.

Source: Bloomberg

Source: Bloomberg

Capital markets — Sterling issuance

  • PA Housing sold £100M of retained bonds from its sustainability-linked, 2.00% 2036 issue.
    • The sale brings the total outstanding principal amount in issue to £400M.
  • Places for People (PfP) came to market with a £500M, 18-year issue on an unsecured basis.
    • It was well received by investors, pricing at +165, tightening 25 bps from the IPT of +190. Books were reported at 2.6x.
  • PfP has been the most active borrower in the housing association (HA) capital markets this year.
    • It utilised the flexibility in its EMTN programme to complete eight issues across three currencies, through a range of taps and new issues, to fund a total of c. £950M.

Private placements

  • There has been a widening of illiquidity premiums from investors due to the increased market and execution volatility seen over the past year. However, investors still remain active with "dry powder", with market activity starting to gain traction.
  • This has included reverse enquiries both for private placements and listed issues.
  • Heart of Medway, the subsidiary of MHS Homes, raised £30M from Pension Insurance Corporation (PIC) in a two-tranche deal. The funding included £20M spot and £10M deferred for two years, both with a 20-year maturity. Pricing was not disclosed.

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.