Bank of England bond-buying auctions set to get under way with HA issuance up for grabs
Housing association bonds are expected at auction today (7 April 2020) as part of the Bank of England’s (BoE) monetary stimulus aimed at reducing the cost of borrowing for investment grade organisations.
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A number of housing associations are also applying and qualifying for the BoE’s Covid Corporate Financing Facility (CCFF), enabling them to sell unsecured commercial paper to the central bank.
The Corporate Bond Purchase Scheme (CBPS) was originally launched in August 2016 in response to the disruption caused by the UK’s vote to leave the European Union, and is designed to impart “monetary stimulus by lowering the yields on corporate bonds, thereby reducing the cost of borrowing for companies”.
Chancellor Rishi Sunak gave the BoE permission to double the scheme from £10bn to £20bn as part of a wave of government interventions in response to COVID-19.
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He agreed an increase in the BoE’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200bn to a total of £645bn, as part of a quantitative easing strategy following weeks of turmoil in the equities and bonds markets.
Sanctuary, Optivo, L&Q, Sovereign, Clarion, Guinness, Midland Heart, Notting Hill Genesis, Orbit, Peabody, Riverside, Together and Wheatley Group are all on the CBPS list, updated on 1 April 2020. Utilities and property companies, such as British Land, are also named.
Both Optivo and Sanctuary became the first to issue in the sterling corporate bond space last week after a market hiatus in March, achieving coupons of 2.857 per cent and 2.375 per cent with spreads of 230 basis points (bps) and 160bps respectively.
Bond purchasing
The BoE said the purchase scheme will commence using the eligible list published on 22 August 2019, ahead of the 2019 reinvestment round, adjusted for maturities and securities that no longer meet the eligibility criteria.
It expects to make the purchases at a significantly faster pace than in the 2016 scheme.
Reverse auctions are set to start today, with three purchase operations a week on Tuesdays, Wednesdays and Thursdays.
The BoE then plans to publish a first update to the eligible list in mid-April.
Dominic Brindley, director in the corporate financing and risk solutions team at NatWest Markets, told Social Housing: “The success of both the recent transactions for Optivo and Sanctuary highlight that social housing bonds are still well sought after.
“Further to these recent primary issuances we also have the Bank of England CBPS looking to start their purchase operations… and housing association bonds make up c.80 per cent of the eligible bonds in property and finance, which should be supportive for the sector’s secondary spread levels.”
He added that in the past fortnight, a number of bonds have started to trade 10-15bps tighter from what had been seen in secondary spreads in March.
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