SSA Market: So many known unknowns - Rabobank

In view of the analysts at Rabobank, one of the many idiosyncrasies (and strengths) of the SSA universe is that annual funding requirements and thus the need to fulfil publicly oriented mandates tend to suggest that even during uncertain conditions a vast array of highly rated issuers will continue to find their way to market.

Key Quotes

“This often results in premiums being offered, particularly when a window is opened and numerous issuers seek to fund simultaneously.”

“With so many known unknowns dominating headlines (Trump, Dutch elections, French elections, Brexit) the prospect of a Fed hike in March solidified on Friday with FOMC Chair Janet Yellen stating that the Committee would evaluate whether employment and inflation are continuing to evolve in line with the FOMC’s expectations. Should this prove to be the case, a further adjustment to the fed funds rate would be deemed appropriate. This took the implied probability of a hike in March from 50% on Monday to 96% by close of trade on Friday, removing one unknown but highlighting just how quickly conditions can change and just how uncertain we remain of their impact.”

“Trader comments

• The market was slightly less volatile at the end of last week although it is still the case that the many moving parts appear to be moving in unrelated directions. Swap/state spreads, Sovereign spreads, yield curves, $/Euro basis all continue to gyrate independently of each other. Given this disconcerting backdrop it is encouraging that there is still so much business going on, some of it expected, much of it not. 
• The front end has remained remarkably robust, permanently oblivious to the vicissitudes afflicting longer maturities with the customary eclectic array of investors active with turnover at very healthy levels. What is perhaps more encouraging is the long dormant parts of the curve are starting to stir. Just a few weeks ago we could hardly give away any agency longer than 6 years but over the last few sessions there has been a clearly discernible increase in interest. We have seen this most obviously in the BNG issues where supply has seemingly hung over the market all year.”