Adam Parry – Mine.Mine.Mine.Mine…….
It’s been a big few days in the Parry household, so this nonsense will be a little shorter than usual.
Today is the day where the days become longer than the nights thanks to yesterday’s Spring solstice, and things are looking up. The summer is on the way, and things will get even better when the clocks go forward next week. Let’s hope that by the time the summer solstice arrives, we will all be back to a close assimilation to normal and I can persuade of few of you, good readers, to buy me a lunch.
Anyway, the reason this weekend has been a busy one despite the lockdown is twofold. First of all, on Friday we took delivery of a little bundle of fluffy joy, a two month old Golden Retriever by the name of Ruby. So instead of writing poop, I’ve been racing around trying keep track of poop.
And as if that was not enough, this afternoon I am receiving the vaccine.
So I’ll be brief.
Who remembers the film Finding Nemo? Well, if you haven’t seen it for a while, look it up on Disney +. The scene that stands out most for me at the moment is when the seagulls gather around Marlon and Dory. Being creatures of very little brain, the seagulls take one look at potential prey and start screaming “Mine, mine, mine, mine………”
All of which brings me to the seagulls of the primary market.
Order books this year have reached levels that are quite frankly bonkers.
During the good, old, days – i.e when I was a primary dealer in European sovereign markets – the syndicate desk had done pretty well if you got orders in excess of three or four times the scheduled amount. So orders of 10bn for a 2.5bn issue.
Let’s just take a look at some sovereign issuance this year. In January, Spain absolutely blew the doors off with an almost unbelievable EUR130bn worth of orders for 10yr paper, the sovereign’s second record deal in less than a year. The Italian Tesoro was not much behind in the summer of 2020 with orders of EUR108bn for a 10yr BTP. Even Greece attracted some decent demand for a 30yr earlier in the year. It’s not just Europe either. The UK’s DMO got £60bn of orders for a new 25yr Gilt in January.
Across the spectrum of European sovereigns, the bid-to-cover ratio was up by almost 40% in 2020 compared with a year earlier.
All of which is manna from heaven for the various DMO’s. Just look at that Gilt auction. The size of the order book allowed them to increase the size of the deal to £6.5bn.
And here is my problem. What is stopping the Spanish Tesoro for example from meeting nearly all of their annual funding in one fell swoop, filling all EUR130bn of the orders on the book?
Well in terms of the sovereign markets, not only would that be met with gasps of shock and horror by those looking to make a quick buck on a hot deal and getting filled in EUR50m when they only wanted EUR5m, but it would also mean that the Spanish redemption profile gets skewed. One suspects they would not give two hoots about the former, but the latter makes a big difference. A balanced yield curve is crucial for sovereign issuers.
But what about the corporate market, where there have also been plenty of deals this year where the order books have been ludicrously bloated.
Say Parry Inc needs to raise a few quid to buy a new premises to make charcuterie. I really only need a couple of bars to get going, and my originator at an investment bank reckons that is doable provided that we make the bond look cheap.
“Go for a 5yr sterling tenor” he says “and offer a 3.5% coupon. That should do the trick”
And so it does. Once announced, the books grow quickly, passing £2bn in the first thirty minutes of book-building. After two hours, the books are at £5bn, and the bonds are 10bp tighter in the grey market.
The syndicate gives me a call to inform me of the demand.
“Fine” I say “Fill them all. That will keep me funded for expansion and I don’t need to come to the market again”
“Really” says the lead manager “That’s not quite the done thing you know”
“Don’t care” I say “Fill em and be damned”.
So I raise £5bn, and we get a massive scramble for those who did not really want paper to offload toxic bonds, leaving many with their heads in their hands sitting on a fairly hefty loss, cursing the day they ever heard of Parry inc and its poxy sausages.
Just a thought.
Talking of charcuterie, here’s a quick recipe for a proper spaghetti carbonara.
Take some of your home-cured bacon and cut it into lardons. Place in a frying pan and fry until crispy. While the bacon is frying, cook your spaghetti according to the packet instructions. In a bowl, mix two egg yolks per person with a big handful of parmesan and a generous seasoning of pepper. Once the spaghetti is cooked, put in the pan with the bacon and turn off the heat. Add the egg mixture and stir through the pasta quickly – you do not want the egg to scramble. Tip into a bowl and top with more parmesan and pepper.
Enjoy, and have a great week.
On the Agenda:
Monday: CFNAI; Existing Home Sales.
Tuesday: New Home Sales; Richmond Fed
Wednesday: Durable Goods; Markit PMIs.
Thursday: Q4 GDP; Initial Jobless Claims.
Friday: Personal Income; Michigan Sentiment.
Monday: ECB Current Account.
Tuesday: Dutch Consumer Confidence; Italian Industrial Orders.
Wednesday: German Consumer Confidence; Markit PMIs; Area Wide Consumer Confidence.
Thursday: German GfK Consumer Confidence; French Business Confidence.
Friday: Dutch GDP; German Retail Sales; German IFO; Italian Consumer Confidence.
Wednesday: Inflation; Markit PMI.
Friday: Retail Sales.
Monday: Powell in discussion on how central banks can innovate in the digital age; Quarles on LIBOR Transition; Bowman on Economic outlook for small businesses.
Tuesday: Powell on Coronavirus aid, relief and economic security act before the House; Brainard on climate change and economic outlook.
Wednesday: Powell on Coronavirus aid, relief and economic security act before the Senate.
Thursday: Clarida on economic outlook and monetary policy.
Wednesday: Lagarde on investing in climate action.
Thursday: General Council meeting of ECB in Frankfurt; monetary developments in euro area; economic bulletin issue; Lagarde at BIS innovation summit.
Friday: Lagarde at Euro Summit.
- Tuesday: Cunliffe at BIS Innovation summit; Bailey panellist at the Economist sustainability week.
- Thursday: Bailey at BIS Innovation summit.
- Friday: Financial Policy Summary and record for March.