Sterling issuance surges amidst rent settlement extension and monetary policy caution

Market update

Capital markets — Sterling issuance

• Capital markets issuance for housing associations (HA) has started to pick up after a slow start to 2024.
• BPHA (A+) sold £75M of retained bonds under its existing 2044 issue.
  • This was the first own-name public bond issue since Sovereign Network in January.
  • IPT was at G+100–105 bps, which represented a 15 bps NIP to the secondary levels on the issue at G+88 prior to announcement.
  • Due to strong demand, guidance was revised to G+90 (+/- 3bps) with final pricing at G+87.
  • Pricing was slightly inside secondary levels on the existing issue, representing a one-basis-point new issue discount. It is reasonably uncommon to see new issuance price inside secondaries — underlying the strength of investor demand, a good credit, and efficient execution on the deal.
• EMH (A) obtained funding through AHGS in March by tapping the Saltaire 2033 bonds. The issue achieved a spread of G+48 and yield of 4.52%, providing EMH with £74.5M of new debt.
• Paradigm (A+) priced £250M of 20-year sustainability-linked bonds at G+87 to yield 5.295%. IPT was at G+100-105, with guidance at G+90.
  • Orderbook was reported at £575M. Their 2051s were trading at +71 pre-issue, representing a NIP of 16 bbps. £100M has been retained for future sale.
• Platform (A+) priced £250M of 26-year sustainability-linked bonds at G+83 to yield 5.342%. Initial price talk was at G+100 with guidance at G+85. The orderbook was reported at c. 3x oversubscribed.
• These recent pricing points confirm strong issuance dynamics for housing associations, both across public and private. Execution risk has fallen, reflected by good bid-to-cover ratios, and a number of pricing points at spreads below 100 bps underline the ability for HA borrowers to tap into tight secondary pricing.

Rent settlement

• It has been announced that the existing rent settlement scheme will roll over until April 2026.
• This means that social and affordable rents will continue to be capped at CPI+1 for an additional year.
• This will give HAs some certainty as they are developing and finalising their business plans over the next couple of weeks.
• The guidance will be welcomed by housing associations, investors, and stakeholders alike as it provides certainty.

Sterling rates markets over the past fortnight

• Gilt yields have increased by c. 10–14 bps over the past fortnight.
• The SONIA swap curve experienced similar movement, rising across the curve by c. 7–12 bps.
• Rates surged as markets opened post Easter weekend, with a c. 20 bps rise in gilt yields and c. 15 bps increase in swap rates from closing on Thursday, 28 March until closing on 02 April.

Economic news

• In its March meeting, the Monetary Policy Committee (MPC) kept the bank rate unchanged at 5.25%.
• The Committee voted eight-to-one, with one member voting for a 25-basis-point cut.
• The sentiment continues to reflect that the MPC needs to see further evidence of underlying inflationary pressures ease before loosening monetary policy.
• This was despite headline CPI coming in at 3.40%, below the Bank of England’s (BoE) expectation of 3.70% for the first quarter of 2024 set out in its February report and the lowest reading since 2021.
• Core CPI, closely monitored by the BoE, came in at 4.50%, down from 5.1%, where it has consecutively sat since November 2023.
• Markets are now expecting the first rate cut to take place in June. Prior to the MPC meeting, markets had been pricing the first rate cut in for August.
• Markets are now pricing in the first European Central Bank (ECB) and Fed rate cuts for July.

Indicative pricing