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By Abhinav Ramnarayan
LONDON, Aug 4 (IFR) - Sterling corporate bonds rallied hardon Thursday after the Bank of England said it would buy them aspart of its quantitative easing reprise, with bankers nowtouting for more business.
Vodafone's £800m 33-year bond printed on Monday was bid at160bp over Gilts, 26bp inside where it was bid just ahead of theannouncement. A BAT 1.75% £500m July 2021 deal was at 74bp, 12bptighter than before the BoE announcement and over 56bp tighterthan where it priced at the end of June.
While the possibility of the Bank of England restarting itscorporate purchase programme had been rumoured for a few weeks,many had thought the central bank would wait until later in theyear to pull the trigger.
Instead, it cut rates by 25bp, increased Gilt purchases by£60bn and said it would buy up to £10bn of corporate bonds.
The BoE said it would buy bonds issued by companies thatmake a material contribution to the UK economy.
"The BOE's bond buying programme will provide similarliquidity effects to the ECB's, and could indeed support greatersterling bond issuance across the yield curve," analysts atMoody's said in a note.
The ratings firm expects the shopping list to includecompanies with plans for significant UK investment and jobcreation.
Citigroup analysts estimated that bonds that are likely tobe eligible to tighten 10bp-15bp on average in the aftermath ofthe announcement, and believe there is potential 25bp-30bptightening in the future.
"At current spreads we would add in eligible bonds wherepossible," they said in a note.
The performance could also further cement the recentsterling issuance revival as issuers try and lock in betterfunding costs.
The announcement by the European Central Bank in March 2016that it would buy corporate bonds at part of its expanded QEprogramme led to a surge in European investment-grade corporateissuance.
One DCM official was juggling calls with clients after theannouncement was made, and said the potential for sterlingissuance was boosted by the measures.
A syndicate official covering corporate bonds warned howeverthat bonds would have to tighten more before sterling fundingbecame much more attractive than US dollars or euro.
"It remains to be seen whether the BoE action tightenssterling spreads so much that it is competitive with euro anddollar again. If it does, yes, I would expect sterlingissuance to increase," he said. (Reporting by Abhinav Ramnarayan, Editing by Helene Durand andSudip Roy)
