* Debt investors divided on US election
* Fed policies tipped to stop assets plunging
* Brexit vote reaction scoured for clues
By Michael Turner
LONDON, July 29 (IFR) - Public sector debt investors are split about how much the November US elections will hit their business, but such is the power of the Fed that some accounts say it barely matters as long as the central bank’s monetary policy stays largely accommodative.
Campaigning in the US election is entering its final critical months with no clear signs yet of who the winner will be.
But some international accounts say their appetite for dollar SSA deals will not be diminished, irrespective of the election outcome, provided the Fed continues its monetary policy stance.
“We will be continuing to hold the US because it is underpinned by the Fed,” said one sovereign, supranational and agency investor. “The Fed has given the green light to investors and people will want to keep on the dance floor.”
SSA issuers have been active in the US dollar market recently, with US$25.85bn raised in the last three weeks, a healthy amount for the time of year.
“It’s a short year [for dollar issuance] with the US elections,” said a syndicate banker. “So issuers were keen to get deals out before the summer lull begins.”
And the entire curve has been open to issuers, with Rentenbank bringing a US$1.5bn 10-year trade last week and a handful of five-year trades for African Development Bank, NRW.Bank and Nordic Investment Bank in the last fortnight.
SSA borrowers were constrained to much shorter tenors earlier in the year, as moves in US Treasuries made longer maturities prohibitively expensive.
And even with the possibility of another rates rise before the end of the year, issuance should stay buoyant as long as the Fed doesn’t embark on a series of hikes, which seems unlikely.
Treasury yields are still at highly attractive levels for issuers with the 10-year trading at 1.525%, 70bp lower than in January.
For some SSA investors, there’s little alternative to buying dollar assets.
“There’s nothing blindingly obvious anywhere (else),” said the investor.
For others, though, the election outcome will be potentially more worrying if Republican candidate Donald Trump emerges as the victor.
“Markets hate uncertainty, and investors do not know what President Trump stands for,” said Paresh Upadhyaya, director of currency strategy, US, at Pioneer Investments.
“There would be a sell off in markets that would probably be enough to enter a bear market and investors would have to move very quickly to stem losses.”
The selling would last until investors had a more concrete idea of Trump’s policies, said Upadhyaya.
However, investors will be heartened by the relatively calm global markets reaction to the Brexit vote in the UK. This is in large part thanks to investors’ belief in central banks. The Bank of England, for example, is expected to cut rates next week and possibly announce other stimulus measures.
“The central banks have shown that they will do what they can not to have another crisis,” said the investor. “You can try and bet against that, but it’s not easy.” (Reporting by Michael Turner; editing by Sudip Roy and Alex Chambers)