Gilt rally opens issuance window for housing associations amid volatile rate environment

Market update

Capital markets

• Since the start of July, a gilt market rally has created an attractive issuance window for housing associations (HA).
  • At the 30-year point, gilt yields came down by 24 basis points from 4.67% (25 July) to 4.43% (2 August).
  • Yields have since risen by around five to six basis points but are still trading at much lower levels compared to a fortnight ago.
• Secondary spreads are at tight levels, with strong investor demand for HA credits across the credit spectrum. With 2024 proving to be quieter in terms of new issuance, it seems investors are looking at secondary markets in the absence of primary issuance.
• Lower benchmark yields and tight spreads mean that HA issuers can benefit from some of the most attractive all-in rates seen since December 2023.
• LiveWest capitalised on these favourable pricing dynamics by issuing £100.0M of 10-year notes with a coupon of 5.074% off its £1B EMTN programme.
  • £25.0M were initially sold on 1 August, leaving £75.0M retained and available for sale.
  • The following day, £50M of the retained bonds were sold, leaving only £25.0M retained.
  • The subsequent retained bond sale was likely sold into a rallying market at lower rates than the coupon on 1 August. LiveWest managed to time its issuance to benefit from lower benchmark rates and tightening spreads on the bonds.
  • The transaction illustrates the benefits of speed and agility in the funding markets, with LiveWest having an EMTN programme in place, which allowed for swift execution to capitalise on a favourable market.
• Eastlight Community Homes obtained £70M of funding through the AHGS scheme. The transaction achieved an attractive all-in yield at sub-4.65%. This funding will help Eastlight continue to grow and develop 300 new social and affordable homes per year and continue to add tremendous value to its tenants.
  • Chatham supported Eastlight during the transaction and helped them achieve funding at attractive all-in rates.
  • Chatham is currently working with other borrowers looking to obtain funding through the scheme. Please get in contact here to see how we can support with AHGS issuance and identifying the most suitable funding routes.

Sterling rates market

• Rates have fallen over the last fortnight, but markets remain volatile and sensitive to data releases.
  • The sterling market has seen some movement, but the majority of the volatility has been concentrated in U.S. markets.
  • Rates have fallen c. 15–17 bps across SONIA swap curves, with the shorter end of the curves down by closer to 20 bps.
• The BoE's rate cut didn't elicit a strong initial reaction, though there was some adjustment in short-term rate expectations.
  • The shorter end of the gilt and SONIA swap curve fell by 15–20 basis points between the day before the Monetary Policy Committee (MPC) and the day after.
  • Much of the cut was priced in during the week prior.
  • Whilst there has been a slight correction with rates moving upwards, rates are still lower by five to 10 bps compared to where they were at the end of July.
• Periods of rallying swaps and gilts provide a window of opportunity for HAs to achieve an attractive all-in rate, with all-in rates of less than or close to 5.00% achievable.
• Contact us to discuss how we can assist you in navigating the capital markets and identifying the best issuance window for optimal execution.

Economic news

• The BoE cut the bank rate by 25 bps to 5.00% in its August meeting. This was the first time U.K. rates were lowered since 2020. This marks a notable departure from the BoE’s historic practice of following the Federal Reserve.
• It was a close call between the nine committee members, with five members voting for a cut and four members voting for rates to remain unchanged.
• Governor Bailey was among the Committee members who backed a cut but warned against cutting rates “too quickly” or by “too much.”
• The cut came as a slight surprise to markets that had only priced in 60% of a 25-basis-point rate cut prior to the meeting, with expectations that the first cut would take place at the September meeting.
• Prior to the MPC meeting, the Fed voted to hold its target rate at current levels of 5.25%–5.50%.

Indicative pricing