The prospect of more benchmark issues from top-quality issuers is likely because of a collapse in demand for interest-rate-based structured MTNs. This will not suit issuers, which have taken to the product with some enthusiasm.
High-quality borrowers only issue benchmarks to achieve volume and maintain a level of market visibility. They are able to print at far tighter spreads using structured medium-term notes. In the past few years, there has been a boom in interest-rate-linked MTNs that has enabled supranational, sovereign and agency borrowers to finance on highly aggressive terms. A borrower such as the World Bank will achieve Libor less 40 basis points on a structured trade but a benchmark will achieve in the region of Libor less 20bp – in fact the re-offer on its recent euro bond was mid-swaps less 18bp, which worked out to Libor less 19bp once swapped back to floating-rate dollars (see World Bank story).
It has been difficult for borrowers to raise their entire annual financing requirements purely through MTNs, however. And now that the market has dried up, bankers are suggesting that it will be even harder.
"Rate-linked structured note issuance has fallen because of lower demand for the product.