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Capital Markets

SSAs lurch into the unknown

Long sheltered from the credit crunch, sovereign, supranational and agency spreads have ballooned in the wake of the introduction of government-guaranteed bank debt. How will SSA names find their place in the uncharted territory of Libor-plus? Jethro Wookey reports.

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UNEASE HAS SPREAD to sovereign, supranational and agency issuers. "It’s the most uncertain time ever seen in this market. Every morning, we don’t know what the day will bring. The banks don’t know, the investors don’t know. No one knows," says a European supranational funding head reflecting on the present state of the SSA market.

The source of such uncertainty is the newly minted asset class of government-guaranteed bank paper, in which Barclays launched the first deal on October 24. In its wake, SSA spreads widened against swaps by upwards of 40 basis points. For a market that traditionally moves only single basis points at a time, and has always been seen as a haven from the world’s financial turmoil, these spread moves were completely unprecedented and utterly shocking. It is no wonder that a conversation over appropriate fees paid by SSAs to banks for issuance has sprung up in the aftermath. "SSAs used to explore pricing within tenths of a basis point," says Mark Wheatcroft, co-head of debt syndicate at UBS. "Now there could be a 10bp to 15bp range. All are having to adapt."

Suddenly, holders of SSA bonds were looking at a big repricing of their portfolios as their steady, sensible SSA exposure suddenly became a collection of highly volatile bonds.

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