IGTA Journal - Summer 2020

foreign exchange market, for example, which has been making this shift for years, the commercial paper market in Europe is only at the beginning of a possible transformation, with the emergence of two platforms, NowCP and Onbrane, which, although both aim to make transactions more fluid, do not follow the same approach. Is it appropriate to use their services? The question has been under consideration for several months or quarters in treasuries and intermediaries. Sustained demand One of the main attractions of financing with short-term securities is the low prices. This has been particularly true in recent years for reasons relating to the structure of the market on the one hand, and the long-term trend of a fall in the general level of interest rates on the other, accentuated by the unconventional policy of the ECB. "Before the crisis, there was a clear distortion between the supply and demand for paper," says Mathilde Lacoste of Swiss Life AM France. "We often only had thirty seconds to make a decision," confirms her colleague Mikaël Pacot, from Axa IM, who specifies that for securities issued by companies, the range between the prices offered and the prices asked was a few basis points. Credit quality is of course a relevant element in the determination of the price, but without excessive determinism. "There is less correlation to credit quality than in the bond market," explains Antoine Capri, from the broker Tradition Securities and Futures. And if we look at the statistics on the NEU CPs put online by the Banque de France, we can see that from one month to the next there can be distortions: for example, in June 2019, companies rated in class 2 (on a scale of four in the investment category) benefited from slightly less favourable conditions than those rated in class 3, while in January of the same year, the same rate (- 0.29%) applied to classes 1 and 3. These distortions have multiple causes, notably the fact that specialised managers constantly practice arbitrage between the most liquid securities (bank NEU CPs, end-of-life bonds, government securities, etc.) and those offering a better return, for regulatory and sound management reasons. For example, it is common practice to give a premium to a rare paper or to an unrated security issued by a well-established company. Crises exacerbate these a priori unjustified spreads: for example, in March, when the market for NEU CP seriously seized up, two companies that were very similar in terms of credit quality were able to borrow 30 basis points from each other at the same time, "an anomaly that does not or rarely occurs with bank paper", notes Mathilde Lacoste. Finally, the same issuer, at the same time, may be dealing with different prices on the NEU CP market and the Euro CP market, the former being more favourable to the borrower, according to Henri Martinet. Corporate treasurers, for their part, consider on the one hand the distribution of issues over time and the choice of maturities (with, for example, for companies that closely monitor their debt, putting the soft pedal on issues at the end of the quarter), and on the other hand prices. This gymnastics is less acrobatic when market conditions are exceptionally favourable, as in IGTA eJournal | Summer 2020 | 15