(Refiles to clarify wording in paragraph five)
* Spain's 2nd biggest bank opens bank bond mkt in 2013
* Investors chase yield but fear big correction
* Sovereign's downgrade and fiscal cliff 2 risks ahead
By Aimee Donnellan
LONDON, Jan 4 (IFR) - BBVA's ability to attract a EUR5.5bn
order book when it opened the senior FIG sector this week is
hailed by bankers as a fresh sign of a normalising market, but
some investors are wary a massive correction may be in store.
A five-year maturity, EUR5.5bn of demand and the fact the
deal priced through the Spanish bank's secondary yield curve
were seen as encouraging indicators in a market where peripheral
labels are no longer seen as a scarlet mark of shame.
BBVA's capital and funding managing director Erik Schotkamp
was certainly not complaining in the aftermath of the bond
pricing and said the demand and quality of BBVA's order book
speaks volumes about how well received this deal has been.
"The transaction proves that there is great appetite for
names like BBVA that offer a lot of value right now for
investors," he said.
The senior unsecured market has regularly closed since the
financial crisis and Nordic, Dutch and German credits have
typically been first to reopen it. So it is a measure of the
recovery in financial spreads over the past 12 months that a
bank from a weaker jurisdiction can open up the market too.
The senior financials index has tightened by 144bp since
January 2012 when Rabobank opened the market in the New Year
with a 10-year senior bond.
However, concerns surrounding Spain's Baa3/BBB-/BBB credit
ratings and the fiscal cliff part 2 - likely in two months' time
- are certainly preying on the minds of investors.
"The peripheral eurozone problems have not gone away," said
Neil Williamson, head of EMEA credit research at Aberdeen Asset
"The OMT and Draghi's promise to do whatever it takes have
helped but the underlying growth problems are still there and
Spain is still teetering on the edge of being sub-investment
Spain's economy has been in recession since the end of 2011,
its second recession since 2009, and is expected to continue to
contract until late 2013 due to anaemic domestic demand.
Despite these concerns, investors admit they have been
chasing yield in some murkier parts, which has driven three-year
Irish secured bank bond spreads in by 300bp to the high 200s and
allowed Portuguese banks to break a two-year public market
drought to sell unsecured debt.
Portfolio managers say the rallying market in addition to
the fact that end-investor clients expect a return on their
money is ratcheting up the pressure to take up positions.
This was evident at the tail-end of last year, when Bank of
Ireland managed to sell EUR250m of 10-year subordinated debt
only 18 months after it had burned junior bondholders holding
BBVA, it was argued, is a strong, well-capitalised and
diversified bank that offered investors nearly 300bp over
mid-swaps, which looks like good value if you can take the risk
it slips from Baa3/BBB-/BBB+ to sub-investment grade.
A2/A+/A+ rated French bank BNP Paribas, offered investors a
mere 75bp for five-year unsecured debt this week.
And many investors say that, despite taking the view that
the current rally is coming to its end, they are comfortable
with their ability to read the market.
"If things on the macro side turn down again, many think as
long as they are not too overweight they will see it coming
first," said Williamson.
(Reporting by Aimee Donnellan; editing by Alex Chambers, Philip