* 2 BoE-eligible corporates hit sterling market
* Northumbrian Water could price inside curve
* BoE to publish purchases from next week
By Tom Porter
LONDON, Sept 29 (IFR) - Two companies with bonds eligible
for the Bank of England's purchase programme hit the market on
Thursday, giving sterling investors another chance to bet on
monetary policy-fuelled secondary performance.
The central bank has been purchasing investment-grade
corporate bonds in the secondary market since Tuesday, as it
looks to buy up to £10bn over the next 18 months via reverse
auctions held every Tuesday, Wednesday and Friday.
Northumbrian Water and Deutsche Telekom, whose outstanding
sterling bonds are on the eligible list published on September
12, both launched new trades in the currency on Thursday.
The pair of BoE-eligible trades come shortly after BASF
priced the first such deal on Wednesday, a £250m seven-year sold
at Gilts plus 67bp.
Northumbrian Water looks set to price the new deal inside
where its existing bonds are trading, with DT offering virtually
no premium, suggesting buyers are banking on the BoE sending
spreads even tighter.
But unlike the European Central Bank, which has been
shopping in the primary market for corporate bonds, the BoE will
only be buying in secondary.
That is an additional comfort for investors, according to
one corporate syndicate official in London.
"If you're an investor you're happier with the BoE approach,
because overall more of the benefit should accrue to you rather
than the issuer," he said.
"The ECB gets involved in primary, so you have less say on
the price and theoretically the issuer gets some of your
secondary performance priced in."
Northumbrian Water launched a £300m 10-year trade through
Barclays, Lloyds, RBC and Royal Bank of Scotland, with initial
price thoughts at 105bp area over Gilts.
By midday the leads had over £950m in the book, and had
hauled in guidance to 95bp area plus or minus 3bp.
The issuer's 2023 bonds were bid at 96bp pre-announcement,
while its 2033s were bid at 93bp, according to a lead manager,
who said that put fair value no lower than 93bp.
Given the three times subscription, bankers away from the
deal expected pricing at the tight end of the range, which would
give a negative new issue premium on that basis.
Deutsche Telekom opened books on a seven-year deal at Gilts
plus low 90bp area through Lloyds, RBC, and RBS. Books were
around £375m by midday in London, with no change in the price
Bankers away from the trade saw it as another tightly priced
deal with virtually no new issue premium. One quoted DT's 2022s
trading at 79bp and its 2028s at 104bp before the new deal was
The BoE sparked a sharp rally in sterling corporate bond
spreads with the announcement of its purchase programme on
August 4. Nearly £9bn of investment-grade sterling issuance has
been raised by corporates since that date, versus £4.7bn for the
rest of 2016.
The market will have to wait until October 6 for the BoE to
reveal how successful it has been in picking up assets in
secondary. It will publish a running total of its purchases
every Thursday from next week.
(Reporting by Tom Porter)