SSA Market: Resilience in the face of adversity – Rabobank

Research Team at Rabobank, suggests that the volatility and confusion created by the UK’s decision to leave the European Union (EU) has proven an unwelcome backdrop though has ultimately underscored the resilience of the SSA sector.

Key Quotes

“Though not immune to the negative forces impacting other sectors, SSAs remain well bid across the curve, demand remains strong across the universe of names and maturities.

The prevailing lack of supply is however proving a pressing concern for those looking to get long ahead of the summer break. Many participants, having noted the clear resilience of the SSA market in the face of what was and remains a period of historic adversity are working hard to shore up their books with quality paper before the holiday period sets in.

Trader Comments

The SSA market continues to perform extremely well with a lack of supply the only concern. It was revealing that yesterday’s reverse auction by the DNB attracted a mere 73m of interest from potential sellers compared to over 200m on previous occasions. Historically many of the offers were provided by investors looking to sell at mid-market or better, certainly at levels the banks at that time were not prepared to provide.

There is no longer the threat of a new deal coming at such a level as to make secondary positions appear foolish and any new issue discount is very quickly corrected by the new one tightening and certainly not by the secondary curve widening.

Currently, in view of the lack of supply traders are prepared to pay closer to the offer which means investors do not need the reverse auction to the extent that they did before to secure aggressive bids. More significantly, holders are now more inclined to hold on to their positions as they realise that they are unlikely to be presented with an opportunity to replace them at more advantageous levels and in any case everything is tightening so why sell unless you absolutely have to.”