IFR Magazine - October 27, 2018

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“They don’t have the most populated
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23bp looking at Ontario ... so plus 25bp is
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dollars alongside its domestic currency
BORROWING

“There is a little bit of paying up to do

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one of the points of doing this is to diversify

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EUROS

SHORT HESSEN STRUGGLES TO CROSS

THE LINE

The STATE OF HESSEN left investors

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BayernLBûDZ Bank and Helaba during

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gain traction and move pricing from the

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The trade came a day after SCHLESWIG-

HOLSTEIN also struggled to motivate the

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Deutsche BankûDZ BankûHSBC and LBBW did

not send any book updates and were unable

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transactions struggled because they were

pricing spot on their curves and not offering

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sense of repricing as more liquid names like

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Hessen’s closest comparable was its

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on Tradeweb largely unchanged from its

LATE

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REOFFER

“There is select demand in short euros; is

it there for this name at this price? I don’t

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blame for the slow demand and in the end it

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not a terribly well-known name - it has a

smaller borrowing programme compared to

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ITSûCURVEv

ISDB EURO SUKUK EXPECTED NEXT WEEK

The ISLAMIC DEVELOPMENT BANK has sent

feedback in the context of 20bp over mid-

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YEARû

EURO

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The feedback came after IsDB took the

deal on a roadshow commencing on October

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Credit AgricoleûLBBWûNatixis and Standard

Chartered are joint lead managers and

BOOKRUNNERS

Fannie sees huge demand

for second SOFR bond

„ SSAR Libor replacement gaining momentum

Housing giant FANNIE MAE saw a huge book of

orders on Thursday for its second bond deal to

use the new US Secured Overnight Financing

Rate (SOFR).

The US$5bn three-part bond deal saw more

than US$18bn of demand from a broad base of

investors, according to Fannie.

Strong showing for the deal puts more

momentum behind SOFR, which was launched

only six months ago as a substitute for Libor.

“These are early days for SOFR,” Kiran Kini, a

vice president and assistant treasurer at Fannie

told IFR in an interview, “but there is very strong

demand for the product.”

The SOFR benchmark is floating-rate and

aims to replace Libor, which is due to be phased

out in three years’ time.

It was created by the Alternative Reference Rates

Committee (ARRC), which includes derivatives

market participants and regulators. The New York

Fed publishes the rate on its website every business

day at about 8am in New York.

Big banks swept up in a Libor rigging scandal in

the wake of the financial crisis showed how flaws

in Libor made it vulnerable to manipulation.

SOFR, by contrast, is based off some

US$700bn-$800bn of daily trading activity of

US Treasuries, making it difficult for one player to

influence its rate.

Bond deals that have incorporated SOFR, so

far, have been shorter dated in nature, although

issuing longer-dated securities linked to the rate

remains a goal for the program in the future.

Fannie’s new financing was split into six-

month, 12-month and 18-month securities that

priced at 4bp, 7bp and 10bp over the benchmark,

respectively.

JP Morgan, Nomura and TD Securities

were lead managers. Academy Securities

and CastleOak Securities were selling group

members.

The mortgage company has been a leading

proponent of the shift to SOFR, and in July

became the first company to use the new

benchmark to sell bonds.

Since then, S&P has confirmed SOFR as

an anchor rate for S&P-rated money market

funds.

Wells Fargo and JP Morgan, for example, have

also have also tapped SOFR to issue debt.

“It is important that we find ways to promote

the use of SOFR because the risks to Libor are,

at this stage, quite considerable,” said Randal

Quarles, Federal Reserve vice chairman for

supervision, in a statement about the Fannie’s

second deal.

But as more investors greenlight SOFR as an

approved part of their investment portfolios, the

hope is that it catches on broadly.

“Investors are still in the process of getting

operationally ready for it,” Kini said.

Joy Wiltermuth