Pricing guidance
Securities - issuance - pricing - initial price thoughts.
In the context of securities issuance, pricing guidance is an intermediate stage of pricing discussions with potential investors, after initial price thoughts and before final pricing.
Pricing guidance is sometimes known as Initial Pricing Guidance (IPG).
How price guidance works in practice
Once the book building process has started, [intermediary] banks release updates on pricing (also known as price guidance) and it is almost exclusively one way: tightening.
This stage allows banks to test the order book with an improved pricing for their client (the bond issuer).
After the guidance is released, if investors pull their orders below the targeted issue size, then the tightening has been too aggressive.
Conversely, if investors stay in the deal and the order book is still multiple times the targeted size of the new issue, then there is room for further tightening.
In reality, this process is more of an art than a science and there are many other factors that influence pricing, such as market conditions, quality of the book, issue size, flows, secondary trading success, and obviously the issuer’s view.
Taking all of these factors into consideration, banks release final pricing.
- Is Initial Price Talk a genuine price discovery tool - Charles de Quinsonas - Bond Vigilantes - for Investment Professionals only - January 2024.
- Heathrow's sustainability-linked bond priced at tighter end of guidance
- "Following strong engagement from more than 100 investors, the deal was announced with Initial Price Thoughts of MS+165-170bps.
- With demand proving to be strong, updated pricing guidance of MS+150bps was released, after which the orderbook continued to grow and peaked at €2bn.
- Consequently, Heathrow was able to set a final size of €650m and price at the tighter end of guidance at MS+148bps."
- ACT Deals of the Year Awards 2023: Bonds below £750m winner.
See also
- Aggressive
- Arranger
- Bond
- Bond vigilante
- Book build
- bp
- Guidance
- Initial Price Thoughts (IPT)
- Investment bank
- Issue
- Mid-swap (MS)
- Order book
- Oversubscribed
- Price discovery
- Price formation
- Price talk
- Price whispers
- Pricing guidance
- Secondary market
- Sustainability-linked bond (SLB)
- Tightening
- Widening
