Tensions Build Over Bond Allocations and Pricing Feedback – Overbond.com
December 15, 2016 \ 6 Comments
Full Article: Overbond
Bond investors and syndicate bankers are growing increasingly frustrated with each other as the already thorny topic of allocations and how to reward investors for their feedback is being further poisoned by new regulations.
Pricing has nothing to do with ‘investor feedback’ and everything to do with supply and demand. The bigger problem in this space is the lack of structure around the new issue allocation process. Syndicate guys will allocate more bonds to a certain salesperson’s account if they like the salesperson. Its a very odd system. There is no structure or standard. This must be addressed.
This….this article is a masterpiece of comedy. Be careful institutional buy-side clients and syndicate desks. If you argue too loudly, people might overhear how incredibly corrupt the primary market is for corporate bonds. Shhhh. Keep it quiet and the gravy train will continue. You’re bound to say something that arouses suspicion like: “There’s not enough discrimination towards those who are communicating to issuers/banks where they are willing to invest in a transaction. To me, that has enormous value and it’s very important. I would argue that these guys deserve to be treated better.” There’s not enough…..discrimination?! My boy, you are… Read more »
I always wonder why regulators turn a blind eye to so many clearly obvious “inequities” in FI. In particular, I like this line: “Issuers are paying us for our distribution capabilities and certainty of execution.” If the secondary market is any indication, the increase in electronic trading and the “all to all” sentiment don’t say much about your “distribution capabilities” and “certainty of execution”. In fact, quite the opposite. Primary issues largely sell themselves. Your “distribution capabilities” largely consist of Joe Salesguy hitting 3 1 quicker than sales at one of the other leads. Somehow that’s worth a pretty fat… Read more »
Well, well, well, we really seem to have hit a nerve with the 10,000 hours team. It’s hard to ignore the sarcastic cynicism with which the experts evaluate the syndicate relationships. It’s clearly based on fundamentals that over the past six or seven years have shifted and may no monger represent how this process should actually work. The increase in issuance and its related demand from investors has certainly made the syndicate managers job easier, but in the end, it is about distribution. Technology will improve this process and we will see issues coming t market in more automated ways.… Read more »
The new issue process in corporate bonds is criminal activity that the regulators have ignored for years. Playing favorites is the rule not the exception. And there is plenty of reason to play favorites; see more secondary flow, take someone out of a position when needed, you know, you scratch my back and I’ll make sure you get great new issue allocations! The article seems to suggest that some dealers are going to ‘equalisation’ (must be European given the use of the ‘s’). I don’t have a problem with this other than it would allow ‘investors’ come in late to… Read more »
Breaking down the wall of the new issue construct will be no easy task. It’s been a new issue dream market for awhile now, deals crowded with firms reaching for yield, syndicate desks are shooting fish in a barrel. Auction style IPO/debt raising have worked (Google IPO, US Treasuries,) and Zions Bank has a solid track record of auctioning new and secondary debt, albeit on a smaller scale. Will electronic methods like this catch on as automation continues? What happens to the process in a bear market…..do the stated value props of lead orders, deal pitching, and backstopping deals show… Read more »
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