Syndication, Taps and Reopenings
The three main ways an issuer brings new bonds to market — a fully marketed syndicated deal, a quiet add-on tap of an existing bond, and a scheduled reopening of an existing issue — each suited to a different funding need.
When a government or company needs to borrow, it can bring bonds to market in a few different ways, and the choice affects both pricing and how much attention the deal draws.
A syndicated deal is the standard route for a brand-new bond: a group of banks (the syndicate) builds an order book by soliciting investor interest over a day or two, then prices the deal once demand is visible. A tap is quieter — the issuer sells more of an already-existing bond, matching its original coupon and maturity, usually in smaller size and with less advance marketing. A reopening is essentially the same idea used by government debt managers on a preannounced schedule, so market participants know in advance exactly when more of a given bond will be issued.
A syndicated deal creates a brand-new bond through active investor marketing; a tap or reopening instead issues more of an existing bond at its original terms, usually with far less fanfare and on a more predictable schedule.
Why issuers use taps and reopenings
Issuing entirely new bonds for every borrowing need would fragment the market into hundreds of small, illiquid issues. Taps and reopenings instead let an issuer build up the outstanding size of a smaller number of benchmark bonds, which keeps those bonds more liquid and easier to trade — a Treasury investor generally prefers one $30 billion issue to three separate $10 billion issues with slightly different coupons.
For government issuers especially, a published reopening calendar reduces uncertainty for investors, which in turn tends to lower the cost of borrowing.
Related concepts
Practice in interviews
Further reading
- SIFMA, 'Primary Market Issuance Procedures'