SSAs and US Treasuries: crossing the final frontier

You're listening to the Global Capital Podcast, proudly sponsored by KFW. Hello and welcome to the Global Capital Podcast. I'm Ralph Sinclair and I'm the Chief Product Officer at Global Capital. I'm John Hay, Gordbritz, Markets and Sustainability Editor. I am Edison, I'm the Associate Editor. I'm Thomas Hopkins, Global Capital's European CLE reporter. I'm Luke Jeffs, the Covered Bond Editor. Now the Super National and Agency Bond market has been jammed with deals this week. Now normally you might expect an increase in supply of something to push down prices, but there's been nothing of a sort here. Instead, deals have been going so well that the market is once again contemplating what for so long has been completely unthinkable. One of its borrowers could price a bond tighter than US Treasuries. We'll be talking with Edison in a few minutes about that and the prospects for it and when or if it might happen. We're also going to be discussing how borrowers at the other end of the credit rating spectrum are deciding where to raise cash. Thomas, you'll be showing us who's going to the leverage loan market and who's turning to private credit instead. And what the impact that will bring to the market for collateralized loan obligations. And then returning to highly rated issuers of dollar bonds, we'll be looking at the prospect for more covered bonds in the currency with Luke after some eye catching recent issuance this week. And then finally John, something completely different from you, you'll be telling us about a group of financial trade bodies and what they've said they want from a policy consultation in the equity market from the financial conduct authority. No, Edison, the Super National and Agency bond market, it's been especially busy. In fact, so busy that one of your contacts said that May was the new January referring to how busy it's been the January to keeping the busiest months. Give us a flavor of what's been happening this week. Yeah, indeed, it has been insanely busy over the last two weeks. We had just under 20 new issues pricing this week across US dollars and euros and this is not counting activities in other currencies, important to the market, such as Australian dollars last week. We had 14 deals. So that takes us to 33 so mid 30s range within. I believe it was only five business days because of some European holidays. So two days last week three days this week. It is pretty unusual for I mean, it's not unusual to see these numbers in January like you mentioned Ralph, but for May typically in many years, there's this issue as would have been quite well funded by this point going into June and July, which with typically July, especially a second half been the start of the slow down into the summer. But this year because of the year on war, they're starting at the end of February, so March and April, we had quite a volatile market conditions and there were items very low insurance volume on a weekly basis in some of the week stand. The market has seen stabilized some so that has given some of the issues a lot of opportunity whether they wanted to play a bit of catch up because some of the projects were delayed during those two months or simply they just wanted to stay ahead of the curve or even way ahead of the curve than they have done earlier this year because everybody knows there are lots of answers to the under horizon regarding the war and regarding in the second half people also thinking about our US elections and next year French elections etc. So a lot of people are keen to get down the head of time. Well, the point you've been making about volatility hindering issues plans to come to the market, and that's been particularly acute in the dollar market, hasn't it? And so we've seen a particular pickup and issuance there. And what's been notable is just how much demand that's been for these firms. Yeah, interestingly, I think demand is being seen across the board. It's probably not a dollar specific story. We're seeing a lot of euro deals been taking down really well despite really retyping pricing relative to the issuance respective curves or the fair value for their bonds, but in dollars indeed because we had a period of really low insurance volume in particular for dollars over the last two months. Yeah, indeed investors are willing to put cash to work and we're seeing these records or the books not that they're not being seen on the euro side as well. For example, Nordic investment bank did a record Eurogreen bond just yesterday, but in dollars we're seeing records right left and center in terms of either book size or the spread that was being achieved. So why is demand so high? Where are yields on historic basis and what about spreads? There are a couple of things A obviously as we established those pent up demands so investors have cash. They're the ones we invest is either the money from recent coupon payments or the maturing of bonds over the last couple years that they haven't found new home yet. Or there are constantly new market participants entering the SSA market so new kind of money from the credit world and from the equities market continue to flow into the SSA market. But more specifically if you think about yes, directly month, but it doesn't mean that all the deals are well received if they're priced too tight. But why we're having these high levels with deals being multiple times over the SSA that boils down to obviously more than one reason but a key reason identified by market participant is indeed the yield levels that we're at. If we look at for example in the euro market, we had a 10 year transaction from KFW early in the week and the offer yield for that deal. It was a 10 year deal. Triple A rated issuer explicitly guaranteed by the German sovereign. So if we take the KFW 10 year, it's a 3 billion no-grow bond that was issued earlier this week. It was a triple A rated issuer guaranteed by the German sovereign and their 10 year bonds are currently paying 3.4% as of this week. So yeah, we've definitely come a long way from a couple of just a couple years ago where eos are and you feel if we just look at where the guvvie is a trading we are still historically we're at very high levels if we look across the German market, your stretchery is Japan everywhere you look basically UK France. So yes, at these levels, even if the eos perhaps were maybe a couple basis point tighter than they would have come in other periods of year at these kind of levels, I think issuers and the dealers of finding investors quite forgiving on their last basis point or two. And all of this is combining with I guess investors general view of US public finances and the US treasury market. So how these issues to price at really tight spreads versus the US government dollars, isn't it? Yeah, so we've seen dollar swap spreads continue to go tighter meaning US treasury is a trading at a wider and wider gap to the swap rates. And that continued tightening in swap spreads have indeed pulled the SSA spreads to treasury's tighter and tighter. Now this is not a phenomenon like I was saying this is something that we observed over the last year or two but quite interestingly probably just a year ago or maybe 18 months ago people were still worried about book building for US dollar benchmarks starting with a single digit spread over US treasuries they think that will definitely not help with demand during book building and this week we are seeing book buildings starting with mid single digits with the deals lending. It's just two three basis point over US treasury so even within just a short span of a year we've definitely come a long way and this conversation we already had starting last year about whether and how a necessary sure could price flat to US treasury so even through treasuries this is getting some renewed focus and I mean we had a lot of skepticism I would say last last year when we started to talk about this I think the overwhelming majority of the market in fact we did a survey I didn't end up last year only a quarter of the market things this would be possible to see an extra day pricing flat or through treasuries but now I think the conversation that I've been having this week is more and more people think is only a matter of time that will happen obviously it goes down to which is sure what type of deal in terms of his size antenna and when that could happen. Yeah I sense the tone of people you spoke to in your article they were still in general slightly timid about predicting that it was going to happen but then they would quickly offer a caveat that they you know it could happen or is the other way around they thought it could happen and they would sort of try and sort of roll back a bit from that position and that all kind of makes me think they were getting must be getting pretty close I guess none of them want to be put one by the other. Yeah I think it's like one of these things I remember last year when I started to talk to people even those who don't believe it would happen they were caveats with but who knows we didn't think zero or negative interest rate would happen and then look where we were Absolutely just a few years ago then yeah like like I was saying would breach through double digit treasuries lots of people didn't believe that would happen and now we're just getting closer and closer to that magic number of zero basis point but I think what we could all agree is the closer you get to treasuries the harder it is to get even closer that last basis point to or last half a basis point is going to be a lot harder to achieve. It's a real psychological barrier isn't it? Yeah exactly. Addison give us a flavor of some of the issues that we're talking about that we're coming at these great tight spreads this week. So yeah this actually I'm not even just this week last week we've seen a number of deals that price at these levels of. some market participants called it eye-watching tie-tum, which is probably quite accurate. So last week we had Council of Europe Development Bank in three years, KFW in five years and World Bank in ten years. All these deals have priced between 2.4 basis point and 2.8 basis point over treasuries, 2.4 basis point being KFW's five years. 2.7 was where the World Bank's 10-year came, which is a bit of a shocker if you think of a 10-year bond pricing less than 2.5 basis point over treasuries. And that was a large deal as well. It was at six billion transaction. The largest is a bond in 10-year ever. And this week we've seen the Southern Canada, which actually have been expecting them to come out, I think, human rumors rather ever since March, but they finally made a showing this week. And it is one of the names that people were eagerly expecting to see where it would price versus treasury because Canada remains AAA rated. And that deal came just 2 basis point over treasuries. Now, one thing to note about Canada is marketism priced against treasury rather than other SSAs that I mentioned or rather the overwhelming majority of the SSA bonds in dollars. They're executed against swap rates. And the treasury spread is just an equivalent of the SSAs. But Canada started book building at treasuries plus five and landed at plus two, which had been the expectation of market business. I talked to before the deal was priced. So it was fully in line. So yeah, we're not quite there yet, but 2 basis points quite tight. And please know that in secondary market, these deals have all gone tighter as tight as half a basis point in mid-market spread when I checked yesterday in some of these new issues. So yeah, we are getting there in secondary. Where are they there actually in secondary? Some of the bonds are already trading through treasuries. But the big question mark has always been off whether it's achievable in primary market. So then let's assume that's going to happen then because we like these sorts of things to happen. What are the characteristics that will be required for an issue to do this? What sort of issue can do this and what sort of bond will they need to bring? It's an interesting question because until this week, I always would have thought it is a large issue, a best in class, triple a rate is if not very close to, but I rate it. It's published issue in the dollar market. And those issue tend to bring multiple interactions, but those issue as a trading the tightest in the secondary market. Their primary deals are priced much tighter than their peers and they tend to pay very low new issue premiums. But interestingly, that doesn't seem to be the expectation of all the market's piecements. Some people agree with me obviously, but interestingly, some people think it would be a much smaller transaction. It could be a much smaller transaction that actually started to price at those levels. Either it would be something around one-one-half billion, maybe two billion maximum. So I guess for those deals, you don't need a 10 billion Lorda book for those deals to be successful rather if you are thinking about something like 5 billion, you'll probably need a good part of the market to be on your side when it comes to pricing at those levels. They have to be basically on board. And in terms of the tenor, I'm also hearing quite interesting thoughts because so far, five years, either five years of the current, we are seeing the tightest pricing. But interestingly, people think it could either be very long, like a ten-year dollar bond or at a short end, like a three-year. For the ten-year, some people's argument is because a swap spread or rather the spread that the bond would pay over swaps would be optically so much higher. Then another maturity is what that means probably some humeuses would be more willing to look past the fact that the deal was priced at zero or near zero, very close to zero kind of spread over treasuries. And on the short end, I think psychologically, is just much easier to imagine a three-year dollar bond to be priced flat treasuries rather than a ten-year that just seems to be something that some people find it hard to imagine. And I guess yeah, there are other characteristics for a three-year dollar bond that could make that work. But yeah, people seem to think it's going to be a small deal. It's going to be either short-dated or long-dated transaction. But yeah, I guess going back to what we mentioned earlier, only time will tell. I guess that's the sentiment of the market right now. So Madison, when will this great moment come? If only I can tell you, John. I think yeah, it's definitely a crystal ball kind of moment. Who knows is one of the calls that I had in my story. I'm going to steal that. Who knows? But it does feel like we're getting closer and closer to that point. And the trend is continuing. That's not to say that the spot spreads wouldn't come back from here. And then we would probably be pulled away from that magic number at some point, which was something that happened last year. But yeah, but if this continues, we're definitely getting there. Thanks, Heather. It's an up to great. No, Thomas, you've been covering the Clash-aligned loan obligation market in Europe, as usual. And a very interesting trend you're picking up on this week is a divergence between that market, which sits on top of the ordinary, leverage loan market and private credit, which is obviously this very strongly growing sector that has attracted a great deal of attention in the last few years. Yes, I have been, John. And yeah, it's sort of important to note really that there's been a sort of sense of kind of the broadly syndicated loan market and private credit almost sort of operating as kind of competing forces around the same sort of borrowers in leverage finance. And also just in terms of, it's important to remember that CLOs are kind of the dominant player in the broadly syndicated loan markets because they own about sort of 70% of sort of leveraged loans. But there has been this fear sort of, I think, from broadly syndicated loan market participants, like CLO managers, that private credit is somehow sort of encroaching on their turf a bit. I mean, if you think of the pace at which private credit has grown over the last few years, we've got some figures from S&P that sort of suggest that it was worth about $300 billion in late 2020 in Europe. And it's now about $500 billion as of late 2025. And your European CLO market is around 300 billion euros. And so, you know, you would think that, you know, private credit would be sort of poaching quite a lot of the borrowers off, you know, the BSL market in some ways. And it is true that some of the same borrowers will sort of exist kind of in both markets. They will borrow from both markets. But I think increasingly it's becoming true that they, you know, these borrowers approach the two markets for different reasons. And they're in quite sort of different circumstances when they do. And so in some ways, you've got this kind of gap opening up between the types of borrowers that are currently in the BSL market. And, you know, therefore in CLOs as well. And who are sort of exposed to private credit, the private credit lenders have exposure to. It's interesting. It's a very different dynamic from a two or three years ago. The big story was the leverage loan market seized up. Right. This was off when interest rates rose after Russia and where did Ukraine? And, you know, the divergence then was between the two markets and their behavior. Leverage loan market became very sticky and inactive. And private credit stepped up and did a lot of the deals that, you know, needed to be done acquisition, financing, and so on, filling the gap. And, you know, then that dynamic balanced out again over the last couple of years. But what we're talking about here is both markets are operating well, but it's the borrowers which are sort of bifurcating, isn't it? Yes, exactly. And I think what you have to look at here is sort of it goes to the heart of what exactly the two different markets offer borrowers. That kind of gives you a guide as to, I think, the types of borrowers that would gravitate to each market. So just, you know, quite briefly, if you look at the broadly syndicated loan market, if you go there as a borrower, you will get tighter spreads than you can get in private credit. You'll get access to a wide assortment of lenders making it easier for you to sort of raise debt repeatedly. But you do have to accept some kind of execution risk because obviously you're doing this through public markets and you might not get exactly the size of deal or the pricing that you'd initially expected. Whereas in private credit, you know, you get sort of, you will pay higher spreads, but you get a kind of certainty and speed of execution. And then additionally, you know, in private credit, private credit lenders will accept higher levels of leverage and they will lend to borrowers that are often unrated, they don't have to be unrated obviously, but they're often unrated. Whereas, you know, it BSL lenders are kind of stricter about sort of leverage levels and they do require credit ratings. And so, you know, what we've got really is these two markets operating as you say, John's side by side, but essentially the borrowers who really want or need the tightest, tightest possible spreads are kind of being drawn towards the broadly syndicated loan market and CLOs. And borrowers who maybe have slightly more complex credit stories, you know, borrowers who sort of need financing's done a particular speed, you know, and therefore happy to pay us like premium to get those things will sort of be more drawn towards the private credit market. And that's in fact, how these markets can sort of sit side by side. They are both operating, but you know, there is a kind of divergence in borrower type. But this is under the pressure of very specific market conditions, isn't it? I mean, these differences in style and approach between the markets have always been there. But the divergence is happening now because of the market conditions, isn't it? - Exactly. So, what I just described really was sort of the general structure of the two markets, but what is really pushing borrowers sort of down the sort of structural route set up by how these markets are designed, are the current sort of macroeconomic conditions, the current geopolitical forces of work. So, I think one of the very important things is the higher rates that we've seen, you know, sort of since basically Russia invaded Ukraine in 2022 and you had an inflation respite, which meant that central banks had to raise rates at a tame inflation. This ended a long, long era of very low interest rates that has its roots back in the recou, you know, the attempted recovery from the financial crisis. But, you know, what's happened essentially is that there were a lot of borrowers who kind of, you know, came to the market in 2021, who, you know, borrowed in 2021. And their kind of cost of debt has kind of gone up over time. And, you know, because the rates have been raised since 2021. And so, at this point in time, with the higher rates that have been building for several years, suddenly the calculus sort of changes a little bit for borrowers in private credit. You know, because suddenly those higher spreads, which might not have mattered so much when interest rates were sort of negative, you know, those higher spreads start to bite. And so, the BSL market might look attractive, particularly if you've got this sort of looming specter of potential rate rises, because of a protracted Iran war. Obviously, we don't know if that's going to happen, but, you know, it's becoming more and more likely by the day. And so, that sort of pushes borrowers towards, you know, the cheaper debt they could get in the BSL market. But then, sort of on the other side, you know, there are about 57 billion euros of leveraged loans that are due to be refinanced in 2028. And there's kind of a growing maturity wall around this, because again, as I was mentioning, these loans were issued in 2021 when rates with very low borrowers loaded up on cheap debt. And so, you know, something that CLOSER actually concerned about at the moment is whether or not these borrowers, you know, with loans due in 2028 are going to be able to refinance. And in that scenario, actually private credit might provide a solution because private credit has, you know, a slightly more flexible approach to underwriting, you know, it will accept higher levels of leverage, more complex credit stories. And so, you know, some of the borrowers who would struggle to refinance in the BSL market because of these conditions caused by the higher rates in the Iran war may actually turn to private credit. So, you've got, you know, borrowers being pushed towards the two markets very strongly because of what these two markets can offer and because of, you know, current essentially sort of geopolitical and economic volatility. But it's also the software issue, isn't it? And artificial intelligence, which was the big story in capital markets before the war began. Basically, the fear that AI would savage the business models of a lot of software companies which are very prevalent in leverage finance. And, you know, that's another thing which is introducing credit risk at a higher level to leverage finance, isn't it? And contributing to this divergence. Exactly. So, you know, a substantial portion of the leverage loans that are maturing in 2028 are in the software sector. You know, software is a big sector in CLOs. And as you point out, join in leverage finance in general. And so, you know, CLO managers and investors have been kind of particularly wary of these software credits because as you say, there's this fear that artificial intelligence is going to really, really disrupt software companies' business models because, you know, if you offer a kind of software subscription service and, you know, one of your clients can just get AI to write a particular program that can do so. You provide some of that functionality for free or for a much lower cost. That is a very serious start to your business model. And, you know, as you say, John, it was the big story just before the war. And there has been some evolution, obviously, since then. There was a mass sell-off of software credits in February. There's more differentiation in the market now. But if you talk to CLO managers and investors, they're still very, very wary of software. They're very careful about, you know, exactly where they're investing. And so, because you've got the software credits that are part of this crop of loans due in 2028, that will also kind of push some of those borrowers towards the private credit market. Private credit lenders, you know, generally a little bit more tolerant of the risk of software at the moment. But also, it's, you know, it's just that there's an added difficulty of refinancing in the BSL market if you're a software borrower, just because of the nervousness surrounding software. But by the same token, actually, if you are a software company that has got very strong fundamentals and you can demonstrate a really strong resilience to AI, there might actually be some appetite, you know, from the BSL market future refinance there. Because in some ways, you know, with the small share of kind of high quality leverage loans that is available in the BSL market right now, if CLO managers can see a software credit that they really do believe is, you know, a high value credit, they might actually be quite keen to be part of that refinancing. So there might be select instances in which the BSL market still draws in some software borrowers. What do you think this means for CLO markets, on this one might expect that if borrowers were drifting out of the loan market, there'd be much less collateral to put into CLOs and that might have, I guess, pricing ramifications to that market. What are people saying about this effect on CLOs? - Well, I think, Ralph, it's not going to help the situation that CLOs find themselves at the moment, which is that they've got a smaller and smaller and smaller share of high quality leverage loans that they can put into their portfolios. You know, after the Iran war, the share of leverage loans that was trading above par did drop briefly to about 4%, but it's been rapidly climbing again. And as of this week, it's kind of over half the market is above par again. And this cold dynamic is just being made worse by the fact that managers feel that there is a smaller and smaller and smaller share of loans that they can actually buy and trust the credit quality of. So they're being pushed into this situation where they have to buy crates that are close to par or above par. And this is difficult if you want to sort of build equity returns in a CLO, because ultimately the higher quality loans are paying very tight spreads. And additionally, there's very limited ability to do what they call building par in a portfolio by buying loans of cheaper prices that appreciate over time. So the fact that some borrowers are moving towards private credit rather than sort of going into the BSL market could be a problem. But on the other side, this could actually be quite a good thing for BSL CLOs in that we are seeing a divergence in credit quality. And the dynamics we've been talking about with borrowers that are maybe under a bit more pressure moving towards private credit, whereas the borrowers who are sort of higher performing, who can refinance the BSL market coming to the BSL market might mean that ultimately, when BSL CLOs and private credit funds are competing for investors, BSL CLOs start to look quite attractive from an investor point of view if investors have got concerns about credit quality in private credit, BSL portfolios might look quite conceivably a bit healthier than private credit. Oh, thank you Thomas. That's a fantastic tour of the CLO market and those two other related lending markets look forward to having you back again soon. Thanks for that. It's been great to be here. All right, well, Luke, turning to you now and the covered bond market. This is, of course, a market that's very much sort of focused in Europe. And in particular, it sort of has its roots in Germany much of the issuances from European banks, although they're also Asian banks, UK banks, Canadian banks, issue covered bonds. But we're going to take a look at what they've been calling the most successful reg-S dollar covered bond from a European bank in the past decade. And whether that will offer sufficient inspiration for more covered bonds in the currency, tell us a little bit about the deal that happened this week. What was it? Who issued it and how did it go? I think, thanks Ralph. And hello, everyone. So yes, we're going to talk about Bowag, the Austrian bank issued on Wednesday, the first Austrian issued dollar covered bond. Now, there's quite a lot to unpack there. I appreciate and I'm going to endeavor to do that over the next few minutes. But just quickly before we get into it, I thought it was worth mentioning actually this week was very busy. As you said, Ralph, I mean, cover bonds is very much a euro product. And it was a very strong week for euro covered bonds. There were 6.2 billion euros of coverage this week across eight transactions with loads of the big issuers in the market with Catharine, LBW, NordLB. So it was a busy week. But in amongst all that, on Wednesday, Bowag, the Vienna-based Austrian banking group issued a $700 million May 2023. So a three year relatively short, which is fairly typical for the dollar market. As I say, this is the first Austrian dollar covered bond ever issued. And it was the first dollar covered bond. from a European issuer since Bayern LB did a dollar-covered in October last year. So European issue dollar-cover bonds are unusual. They're quite a rare thing. They have been some dollar-covered bonds this year. They were five, all within four weeks of each other between the middle of March and the middle of April and they were from Australian, Canadian, UK and Norwegian issuer. So that was five dollar-covered but none from a Eurozone issuer. So as I say, this one from Baweg is interesting. So it's an Austrian bank. The Euro market is massive and is that the home of cover bonds, why on earth would they go to the dollar market to raise money? Yes, that is the question, John. So the reasons are numerous and they are partly to do with Baweg, it's still and they partly tell us something about the underlying market. So it's a bit of both really. Now in the case of Baweg, just to kind of run through sort of what's happening on their side. So Baweg, which is quite unusual for a European bank, does have some US dollar assets on its balance sheet through its exposure to US corporate. And this is set to increase over the next year or so because Baweg has an agreement with an Irish bank, called permanent TSP, to acquire the bank for 1.6 billion euros that deal set to close at the end of this year or the start of next. And that Irish bank also has some US dollar assets. So whereas Baweg has historically used cross currency swaps, you know, is issued in Euro, cover bonds and used cross currency swaps to get the dollars. Given what's happening with the bank, they've started to look at possibility of alternative funding sources, more natural funding sources, including the dollar-covered bond. And this bond went really well. There were 50 accounts in there, big order book, as Ralph said. It was a glowing success. Bankers on and off the deal were very complimentary. I mean, Baweg did pay out, given it's the first Austrian dollar-covered bond, it's hard to establish fair value, but bankers we spoke to estimated that the bank probably paid five to seven basis points on top of what it would have paid, similar bonds in the secondary Euro bond market. So they did pay up. I mean, partly because it was an inaugural bond, partly because they want to issue more over time. So they're trying to build goodwill with the investors. So there's quite a lot going on on on the Baweg side. But similarly, there is something happening in dollar -covered bonds. It is a small market, as Ralph said, compared to Euro-covered. This year, with the Baweg and the five deals that I mentioned earlier, there's been a total of $7.2 billion of dollar-covered bonds issued, which is not a lot when you think there's been 88 billion euros of Euro-covered. That's across over 105 deals. So that's 7 billion, 6 deals, 88 billion, over 100 deals for euros. So it is a small market, but interestingly, the market has grown. Last year, in all of 2025, there were only four dollar -covered bond deals, and they were worth a total of $4.5 billion. This year, we've had six already. I mean, it's not even the end of May yet. We've had six already, and there were 7.2. So it looks like there's something, there is more activity in dollar-covered bonds this year than previously. So there is something going on there. In the Super National and Agency market that we were talking about earlier with Addison, a lot of those boroughs, they have sort of similarities, I guess, with some of these European banks, that they will do their home currency in euros, and so they will issue a dollar bond and then swap the proceeds back to euros, and basically fund the issuance in euros. So other barrac has these sort of dollar assets. I mean, is there a sort of reason to believe that there might be more European banks without necessarily that they could think this market? And what's the what's the sort of driving force of demand there? I mean, one of the things again, and there's Super National Agency market that's been prevalent over the last, well, let's be honest about it since Donald Trump, not back into the White House, has been this sort of rotation out of US treasury holdings and then investors looking for other sort of dollar assets to buy, which has led them to the Super National Agency market where the bonds are highly rated. Covered bonds, of course, are similarly highly rated. So is that demand dynamic the same for dollar covered bonds? And are people optimistic that there will be more European issuers coming to that market? Because obviously the obvious candidates, I suppose, to do more dollar covered bonds, the Canadian bank. Yeah, exactly right. Yeah, there's, yeah, you've touched upon a few interesting points which are raised in the article. So if I just try and sort of take that maybe in two parts, anecdotally we hear from bankers, a lot of the demand for dollar covered bonds comes from global banks, Canadian banks. They like these dollar covered bonds put in their dollar portfolios. The demand tends to be somewhat sporadic. They tend to come perhaps in sort of waves, which hardly explains why if you look at the distribution of dollar covered bonds over time, they tend to be sort of clusters. There are sort of bikes of activity and then it goes quite again, which is a trend that the bankers talk about quite a lot. The dollar covered bond market particularly relies a lot on reverse inquiries, so what seems to happen is a lot of these reverse inquiries will build up, then an issuer will issue, the reverse inquiries are satisfied to an extent and then they kind of build up again. So it's this kind of build up in demand issuance will then come out to satisfy that demand. Once the demand is satisfied then the issuance tends to drop up again. As I mentioned, BOWA does have slightly unique circumstances for doing it. The bankers I spoke to were, shall we say, cautious about predicting a glut of euro dollar covered bonds, but they said that those European banks with US assets and there are some, there is obviously an opportunity there for them to do it. To the point around dollarization or D dollarization and D treasurization, that is again something that came up in the course of researching this article that there's not really been a move so much away from dollar assets, but investors are increasingly looking for dollar assets that are not US treasuries. So that would seem to be perhaps one of the drivers behind this slight increase in dollar covered bonds this year. So it's been a busy patch for the dollar covered bond market. Are people telling you that they expect more deals? As always, these bankers, they're smart people, they never say never. Having spoken to a few of the people, I would suspect that we're not going to see another deal next week, but as I said, they do come in clusters. The demand builds up, then the issuance comes. If the demand's there, if these reversing queries are coming in from the Canadian banks, if there's more of that, then we could see some more issuance. Next week, more broadly in the covered bond market, there's public holiday across large parts of Europe. So Mondays looking like a bit of a no go, but the expectation is that actually the rest of the week might be fairly busy. As I said at the outset, it was quite, it was strong this week and a lot of the banks are very keen to get their business done while the markets are receptive and they are receptive at the moment. And of course, as we all know, they want to get to a point, they want to do their 70% or 80% or whatever it is by the middle of July. And so there is a bit of a race on to get the business done. So next week is looking good. The dollar covered bonds, I would suspect probably not, but maybe like the bankers, I should never say never. Quite right too. All right, thank you, Luke. That's absolutely fascinating. And I commend all of our listeners to go to the covered bond section of our website and find that story and devour it. Now, John, as we promised our listeners at the start of the show, something quite different. unusual fair and that is the structure of the UK equity market, the financial conduct authorities conducting a consultation on that and this week three trade associations have come together as one to put out their position and they're asking for a couple of things really. I guess one is not to be forced to do more trading on the run of stock exchange and the other is they're very eager to have a consolidated tape. Now let's start with the second point first if that's okay. The consolidated tape is something we've discussed or what you've written extensively. It's coming to the bond market. Remind us what will it do and what's the point of it? So the idea of a consolidated tape is that you combine all the prices traded in the inner market into one feed. The word tape obviously comes from a ticket tape originally used for telegraph signals and it's basically a continuous feed of all traded prices. So all market participants have to disclose what trays they've done and what prices immediately to a central provider and it's really a way to simplify and give market participants a much more comprehensive and readily available data set on all trading. Okay and the three trade bodies that are sort of presented their position as weak. We should say who they are and I'll leave that to you because you will do that better than I can. Why are they so in favour of a consolidated tape themselves? Yeah so there are three markets really that the the two main European jurisdictions, the European Union and the UK have been looking at introducing tapes for and that's bonds, equities and derivatives. The EU and UK both decided to put bonds first at the behest of the market which was you know the bond market did a successful lobbying job and got them to do that. So both of them ran competitions last year and chose providers basically from the private sector to to be the official consolidated tape provider for bonds. The European Union also went ahead with an equities tape and that one they've chosen the provider. It's a consortium of 16 stock exchanges called EuroCTP. There was there was no opposition really nobody else went against them to get it and that should be coming out in July but the UK on equities has been I mean to to be unkind you could say differing to be kind you could say considering the issues very carefully. They've done I think now two public consultations cost benefits analysis and economic study and a great deal of thinking within the towers of the FCA about how to do it and the reason is partly that it's very important to the UK. The UK sees itself as a top equity market and you know London's stock exchange is one of the prides of the British economy and no one wants to see it decline. There is a general sense of a great malaise around it because the US market has been attracting companies that were listed in the UK to go and list in the US. It's been attracting new listings from from ambitious growth companies. So there's a great sense of anxiety in the UK and I wish to sort of put London back at the forefront of equity capital markets. Why do these trade associations believe that a consolidated tape would achieve that in particular? Well I don't think anyone sees it as the silver bullet. Right because I mean markets function already there's efficient trading inequities all big players really and that includes big institutional investors the dealers the brokers they all have access to data feeds from the various trading venues and that includes that you know the stock exchange itself but also banks and other places where trading goes on and they get these at very high speeds. So algorithmic trading is possible in inequities and goes on an enormous amount and this is trading done by computers in in millies you know single milliseconds. So the data quality that these players have is already very good but the the point of the tape would be to democratize this and give the whole market even retail investors ordinary people could receive this information in an affordable way and and the idea is that it should broad and and make the market generally healthier and stronger to have more smaller players involved and and and also provide a very kind of unambiguous reference point for everybody in the market as to as to the the flow of trading. Yeah I was interesting really because I suppose the flow is a different point because of course you know if you look at it from a born market point of view equity prices are already incredibly transparent because a lot of the trading happens on the exchange and public is public and that's related to the other thing that these three trade bodies care about which is they're even though they would like this sort of level of transparency they're at the same time they're they're keen not to that the SCA doesn't push trading onto the London Stock Exchange can you tell us a little bit about that. Yeah so as part of this kind of general head scratching and and worrying that the UK equity market policy makers have been wondering whether the fact that a declining share of trading actually happens in the sort of main market which is the central limit order book of the London Stock Exchange which is sort of an intraday trading and and that is the most visible and transparent bit and that produces the the prices you'll see on screen if you you know look up the share price of BP on on the LSE you know this is this is that these are the prices that feeds into those prices people have been wondering whether it's a problem that less and less trading is actually occurring in their way more of it is bilateral now about 40% is traded bilaterally between market participants without away from any venue and among the 60% that is on venues some of it is in auctions held at the LSE some of it in other venues like dark pools so basically you know if if I think it's totally natural that the regulator would would wonder whether this was okay from a policy point of view or whether the market was becoming less transparent this or less efficient you know and ultimately less powerful as a capital market and less successful so they have been thinking about this now the industry have a very strong view and and that's why the investment association the UK Finance which represents banks and aff me the association for financial markets in Europe which represents investment banks and brokers they all came together this week to issue a joint statement to the FCA and and it rather unusually this is before the FCA's consultation which is due in July and and they they're getting on the front foot because they're worried that the SCA might decide is the problem that more of this trading is happening off the central image order book and we're going to try and introduce measures to push it back why are these these trade bodies why are they worried about and what the FCA is is talking about yeah so the the FCA hasn't said it's going to regulate this issue yet but but in fact there was one line in or a few lines in in a discussion paper they put out last year and they asked a question to the market of whether they should do this I think I think the the trade bodies are a bit worried that the stock exchange which is a powerful voice after all is going to try and encourage the regulator to to do this as well so basically they see as an infringement of freedom for market budgets to trade in the way that they find most efficient and and it's essentially you know originally decades ago all trading was done in quite a uniform way on on stock exchange but that was liberalized you know beginning I suppose in the 80s through the 90s and into the 2000s and as technology developed it became more and more possible to trade off exchange and and in you know people found for certain types of trade and in certain circumstances that to be more efficient so you now have quite a diverse ecosystem with roughly 29% happening on the what's called the club the central limit order book and and the rest split between these other methods I mentioned so the market participants feel that this is efficient because that is what market bettersons desire and any attempt to you know could tail that or introduce incentives to push it back onto the club would not only be irksome to them but could actually make the UK less competitive because you know traders would prefer other jurisdictions where they can trade with would less restrictions so so that is essentially the the thrust of their argument is there a sense that they would you know worry that the on the stock exchange would exert some sort of monopolistic control if they were sort of became this sort of they jury trading when you for everything no I mean it's it's far from that I mean once upon a time they were a monopoly but that is a long time ago and the there's no way that's coming back the FCA made it perfectly clear they they want competition they want diversity in the market it's just that whether they might try for maybe for some types of trades or with some kind of incentive to sort of steer the trading some of it at least back to the club and that is what they're worried about okay so when's the consultation due and when is this likely to result in any regulatory decisions. So that's how I'm making July. And really, we don't know much more about that. The energy bodies have made their feelings clear now. We just have to wait and see on that point. But I think with a consolidated tape, there's much more concrete action likely, which is that the the FCA have now held, as I said, umpteen thought processes to get to the point that what we're waiting for now is for them to announce what is actually going to happen. And this will be, you know, basically probably announcing the tender process to choose the provider. And there's a critical part in that as well, because the FCA have to define what the tape will cover. And it will definitely cover trades that have been executed in equities. But the big question is how much pre-trade information is included as well. And the version that the FCA considered in its last consultation involved publishing the best bid and offer price for a share that are available in the market at any point. And saying what venue they are on. So if you're reading the tape to kind of simplify it, and you want to buy a Lloyd's bank share, you can you can see where the best price isn't and go and go and get it. Or if you've got another offer to trade, you can compare it with that price. But what the trade body is pushing for is for the best five bids and offers on each stock to be published. And that as you can see gives a much sort of richer picture of market liquidity. And so the big question I think at the moment is whether the FCA is going to go for that wish. I think basically up to now they seem to be considering to be a sort of gold standard that they were not going to go for. But that is what the industry bodies are asking them to do. Okay, well look forward to your further coverage of this and it's development and seeing what the FCA does in fact decide. Meanwhile, that's all that we have time for this week. So thanks to my follow podcast participants for contributing to this episode. And but of course as always, thank you most of all for listening. We'll be back with more from the capital markets next week. So thank you and goodbye. Goodbye. Bye.