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* Sterling market wide open for corporates, financials
* Strong performance entices borrowers
* Long-end revival possible
By Helene Durand
LONDON, Aug 8 (IFR) - HSBC, BNP Paribas and BMW are takingfull advantage of positive momentum spurred by the Bank ofEngland's announcement last week of up to £10bn of corporatebond buys, and will price heavily oversubscribed trades later onMonday.
The three opened books on deals ranging from six to12-years, following on from issues last week by Barclays andVodafone for a total £2.25bn on combined orders of over £5.75bn.
The market had already begun recovering ahead of the BoE'ssurprise announcement last Thursday - corporates and financialshave sold just over £8.75bn of bonds since the Brexit vote - butthe pace of issuance should now pick up even further.
"QE is a real game-changer and investors simply can't runthe risk of running underweights in sterling credit," said MarcoBaldini, head of European bond syndicate at Barclays.
"Issuance for most of the year had been at historicallows but it doesn't take a lot to change that and that's whatwe're seeing right now."
Such is the appeal of the market right now that issuers likeHSBC and BNP Paribas are revisiting a currency they have nottapped in years.
HSBC's 12-year senior is its first major sterling holdcobond since 2009. Books rocketed to over £1.9bn, with guidancethen set at Gilts plus 185bp (+/-2bp) from earlier IPTs of plus195bp area.
The lack of sterling issuance is at odds with its US dollarform, where the bank has raised US$16.75bn in 2016, and euroborrowing this year of 3.25bn.
Meanwhile BNP Paribas has not sold any public benchmarksterling bonds since 2012, according to Tradeweb.
"BNP Paribas is taking advantage of the strong conditions insterling at the moment," said a banker on the self-led six-yearbenchmark that at the time was being marketed at 110bp area overGilts.
"There's been a significant rally and Gilt yields areanything between 10bp and 15bp lower. It's cheaper funding thaneuros as the Gilt spread works out at high 30s versusmid-swaps."
IFR calculations had the IPTs equivalent to euro swaps plus42bp, although guidance was subsequently released much tighterat Gilts plus 95bp-100bp on orders of over £1.25bn.
Final terms later came at the tight end for a £500m deal.
Demand was also strong for the day's only corporate trade, asix-year benchmark from BMW that had attracted over £1bn ofinterest at the last update.
Guidance then was set at Gilts plus 70bp area (+/-3bp, wpir)after plus 75bp IPTs via lead HSBC and Morgan Stanley.
"Right now, funding levels in sterling are pretty compellingfor issuers that swap the funds back to euros or US dollars, andeven for those that keep the funds in sterling," said Baldini.
While the BoE is yet to release its list of eligible issuersfor the new corporate purchase scheme, Bank of America MerrillLynch credit strategists think BMW will be eligible. This putsthe German carmaker in a bracket the BAML strategists dub "CSPPsquared", as it is also eligible for the ECB's CSPP.
"We think the two policies will end up reinforcing eachother for this subset - and thus be very bullish for theirspreads," the strategists said in a note last week.
MORE TO GO
Expectations are that the post-BoE announcement rally hassome time to run with analysts at JP Morgan, for example,estimating that spreads could tighten by 40bp-150bp over thenext few weeks.
Some of this has already materialised. The sterlingnon-financials iBoxx index is 29bp tighter than the day beforethe BoE announcement at just over 168bp, while the financialsindex is 17bp tighter.
"We can look to Europe's recent experience for a sense ofwhere UK IG credit may be heading," said Andreas Michalitsianos,fund manager, JPM Sterling Corporate Bond Fund, in a note.
"The ECB's staggeringly ambitious corporate bond purchasingprogramme has had a major influence, with spreads of eligibleissuers tightening by approximately 35% since the announcementof the program in March...This major incremental, non-economicbuyer is a bullish signal underpinning corporate bond markets."
LONG END HEYDAY
The BoE's intervention could also mean a return of thelong-end's heyday, according to Matthew Bailey, Europe creditresearch at JP Morgan.
The long end of the sterling curve has struggled over thepast two years due to changes in pension legislationstructurally lowering the demand for duration, he said.
"However, in our view, curve steepening in sterling has nowrun its course...the global 'search-for-yield' in investmentgrade fixed income is back, with investors buying anything witha positive carry. In an environment where spreads are rallyingdue to central bank buying, we recommend increasing exposure tolong-dated sterling credit."
Some long-end deals have already performed phenomenallywell. Electricite de France £1.3bn 2114s are now up 22 points ata 166 cash price since the BoE announced its programme. (Reporting by Helene Durand, Additional reporting by RobertSmith, Editing by Julian Baker and Sudip Roy)
