Housing associations welcome BoE bond buying inclusion

The BoE announced yesterday that it is including a number of bonds from 14 associations in its plans for the £10bn Corporate Bond Purchase Scheme (CBPS).

The scheme was part of an economic stimulus package revealed in August 2016 amid concerns of the fallout from the UK’s vote to leave the European Union (EU).

HAs were omitted in the first list, which was announced in September 2016.

However, the latest update means a boost to ‘property & finance’ bonds - which made up just 2 per cent of the purchase programme in September - and other credits with a social aspect, such as universities.

The updated list included a number of bonds issued by A2Dominion, Affinity Sutton, Amicushorizon, Guinness, L&Q, Midland Heart, Notting Hill, Orbit, Peabody, Riverside, Sanctuary, Sovereign, Together and Wheatley Group.

This is an historic achievement for the sector - Susan Hickey, Peabody

There are a number of names not included in this batch, such as Places for People, Hyde, Moat, Great Places, Circle, BPHA and others.

However, it is understood that the BoE has not ruled out inclusion of more housing association bonds in future. It is focusing on ‘investment-grade bonds issued by companies that make a material contribution to economic activity in the UK’. 

The BoE will hold reverse auctions, with three purchase operations a week, on Tuesdays, Wednesdays and Fridays. It plans to structure each auction around bonds issued by organisations from certain sectors and include each eligible bond in an auction at least once a week.

Susan Hickey, chief financial officer at Peabody, said: ‘This is an historic achievement for the sector, demonstrating real confidence in our ability and in our financial strength and capacity to help tackle the housing crisis.

‘This should make it cheaper to borrow and make it easier for us to invest and attract investment in new homes, communities and infrastructure. It is great news.’

Martin Watts, treasury director at L&Q, said: ‘We would expect the BoE will need to address their now underweight position in the ‘property & finance’ sector and this should mean they will be active bidders in secondary for the housing bonds that are on the list.

‘This increase in demand should lower credit spreads, and the broader sector should also benefit. It is too early to determined at this stage to what extent the impact will be.’

Gareth Francis, treasury director at Affinity Sutton, added: ‘What it means for Affinity Sutton immediately is a tightening of spreads. 

‘I would imagine that other ‘plain vanilla’ bonds will eventually make it on to the list and should see a similar pick up. 

What it means for Affinity Sutton immediately is a tightening of spreads - Gareth Francis, Affinity Sutton

‘It should also directly improve the ‘marketability’ of future bonds if they are structured on the same basis, and therefore help the cost of finance for future issuance whilst the programme is running.’

Tom Paul, treasury director at AmicusHorizon, added: ‘It’s good news for us and for the sector, and marks a certain coming of age for the market which really only got going at scale in the last few years.

‘It’s great to know there is an additional buyer in the market, and this should help secondary market pricing. It’ll be unusual to have the Bank of England as an investor, though I look forward to investor update meetings in the gold vaults.

‘From our perspective it may be best now we’re on the list if they buy the bonds of other HAs – if they buy too much of our debt our investors may start to feel liquidity in our bonds is reduced rather than increased.’

The National Housing Federation (NHF) had been lobbying for housing associations to be included in the CBPS. The NHF had argued it would enable the sector to build a further 12,230 homes as a result of a fall in cost of funds and subsequent available finance.

John Butler, finance policy officer at the NHF, stressed that the updated list ‘will benefit all housing associations with bonds because of the increased liquidity in the market’.

This will benefit all HAs with bonds because of the increased liquidity in the market - John Butler, NHF

However, one major name not included in the latest list is aggregator The Housing Finance Corporation (THFC), which is one of the sector’s biggest and longest-standing funders.

Piers Williamson, chief executive of THFC and AHF, who has been vocal about the sector’s inclusion in the list, said: ‘We are surprised that we’ve not been included. We are having an active dialogue with the Bank.

‘In some respects we have to explain that THFC is an aggregator and not a single credit, so we have to get the central bank comfortable with that. But AHF carries a sovereign guarantee and are the biggest deal by far in the market.’

He added that the AHF product actually ‘insulates The Old Lady’ from risk.

The BoE will purchase a portfolio of up to £10bn of sterling corporate bonds that it says is ‘representative of issuance by firms making a material contribution to the UK economy, in order to impart broad economic stimulus’.

Aims include:

• lowering the yields on sterling corporate bonds, reducing the cost of borrowing for companies
• triggering portfolio rebalancing into other assets by sellers of assets
• stimulating new issuance of sterling corporate bonds. 

The CBPS started to undertake purchases from 27 September 2016 and will operate for an initial period of 18 months. While it will not publish details of specific deals, it will record its share in different sectors on its website.