21 February 2016

Financial Times: Brexit - uncertainty mounts for foreign bond buyers

Foreign bond buyers have started to raise concerns about the effect of Brexit on UK companies and banks, in the latest sign of growing uncertainty over the impact of the British referendum on EU membership.

“Investors globally, in Asia, Europe and the US, are all over this topic and want to understand what does it mean for the UK banks, and what does it mean for the broader European banking system,” said David Hague, a managing director for Nomura, the Japanese bank.

The start of the official referendum campaign comes at a testing time for European bond issuance. Banks in particular have found their access to debt markets restricted, amid volatility and concerns about the way some riskier bonds will be treated by regulators were the issuer to run into trouble.

Debt bankers said uncertainty surrounding the UK vote will not prevent financial institutions from selling new bond issues, but is likely to have implications for the price at which they are sold.

“It’s on investors’ radars. The bond market is a bargain between a buyer and a seller,” said Mr Hague, who is responsible for financial institution debt origination in the UK and Ireland. “In times of uncertainty some of that balance moves around.” [...]

Bond issuance has been held back across Europe so far this year. European banks had sold just under $45bn of bonds by mid-February — the lowest start to a year since 2003, according to Dealogic data. [...]

In the UK securitisation market — where loans are packaged up and sold on as bond-like instruments to investors — Allen & Overy last week drew the attention of clients to several recent UK deals for which prospectuses “have included risk factor wording intended to flag the uncertainty”. [...]

Full article on Financial Times (subscription required)

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