Having welcomed greater clarity on pricing via “will price in range” (WPIR) language in the first two weeks of the year, investors have greeted the return to vaguer guidance and larger moves from initial talk to final spreads with a mixture of frustration and resignedness.

When Bank of Nova Scotia and BayernLB on 4 January responded to an inauspicious start to the post-CBPP3 era by limiting moves from the middle of initial guidance to 2bp and 1bp, respectively, their strategies were in line with what some on the buyside had been advocating for several years. Small wonder that investors were exuberant in their response.

“I very, very, very much welcome the initiative from some issuers to give a clear guidance when it comes to new issuances,” one large investor told The CBR after a variety of issuers had the following week adopted the WPIR language, saying that he was keen to get this message through to issuers and was trying to do so via salespeople.

“Up until now, the guidances were very fair and absolutely in the range where I would have set my limit,” he added. “This shows that issuers and syndicates have done their homework and know where the market will buy. And it definitely prevents anger and disappointment among investors as they do not have to fear that spreads are pulled some 6bp-8bp from initial guidance.”

While he may have been exaggerating the extent to which prices were typically moved amid even the most issuer-friendly periods of CBPP3, his sentiment resonated among his peers.

“For me it’s definitely an improvement,” said one. “It certainly gives me more comfort when you know at the first stage the rough level a new issue is going to come at so I know where I stand, rather than when they first have IPTs and then see how the book builds, and then say OK, now it’s plus or minus 1bp or 2bp.”

Syndicate bankers said that the first trades of the year had shown some reluctance on the part of investors to get involved until final pricing was known, as demonstrated by books experiencing a second wind once spreads were set.

However, not all issuers pursued a WPIR strategy and as the market has boomed this week the nascent practice has fallen by the wayside – to the irritation, if not surprise, of some investors.

“The year started OK, but now you see unfriendly behaviour again,” said one who contacted The CBR to make his feelings known.

He added that even if issuers are not going to limit guidance from the start, they could at least give clarity after one step rather than two. Crédit Mutuel-CIC, Raiffeisenlandesbank Niederoesterreich-Wien and Royal Bank of Canada yesterday (Tuesday) all tightened from initial guidance by 3bp to revised guidance that was then subject to a plus or minus 1bp range (WPIR), and ultimately priced their new issues at the tight end of the revised range, 4bp tighter than the middle of initial guidance.

“Even if the final spread might be OK, why do you need to start at wide levels again and make this stupid +/-1bp after already refining the range when the intention is clearly to price at the tightest level?” said the investor. “Don’t fool investors by promising an interesting spread twice.

“If you are going to refine, just tell us the final spread.”

Syndicate bankers said the reversion to previous standard practice had been prompted by the stark change in dynamics, with investors clearly happy to put their cash to work at the wider and more stable levels that have come around as the market has found a new post-APP equilibrium. Lead syndicate bankers on RBC’s trade and also an SG new issue on Monday said that the 4bp moves from the middle of initial guidance to re-offer were at the very upper end of expectations, and that issuers would not want to limit themselves when demand was so strong and, if anything, secondary spreads are finally showing signs of tightening.

However, one said it is possible that, following the current wave of deals, market dynamics could become more balanced again and WPIR language may once more make sense for both issuers and investors.

Image: detail of Pollice Verso by Jean-Léon Gérôme; Source: Wikimedia Commons