SSA SNAPSHOT: EUR market open but USD deals seeing huge demand

The SSA market saw no activity in euros whatsoever on Monday but that didn't stop a swathe of activity unfolding in adjacent markets and a barrage of new mandates hitting our screens. Deals were priced on Monday in the sterling market from both Asian Development Bank (GBP1bn 5yr) and KfW (GBP1.75bn 3yr) with each issuer also announcing new deals for today's session in what appears to be a rather predictable scramble to get transactions out early in the new year. ADB (which also priced a CHF denominated line Monday) mandated for a new 3yr USD line whilst KfW has opted for a dual-tranche (benchmark long 3yr and EUR3bn 10yr) for its first euro-denominated issuance of the year. Other USD mandates were received from the EIB (conventional long 5yr) and the World Bank (IBRD) (7yr sustainability) whilst the Kingdom of Belgium (long 10yr) is looking to become the first European sovereign to make a move in euros.

If all that isn't enough then we are also on course to see the completion of a 4-part (3yr fixed and 3yr FRN, 5yr fixed and 10yr fixed) SEC-registered issuance from KEXIM, the Development Bank of Japan (USD500m 10yr) will put the finishing touches to the deal it started marketing Monday and African Finance Corp will start investor meeting (today 7th Jan) for a debut PNC5.25 hybrid. That comes almost a year after a similar instrument from AfDB at the start of 2024 (PNC10.5 sustainable hybrid) which theoretically opened up the hybrid market for MDB's albeit that the adoption of deals has so far been absent. EM sovereigns the Republics of Chile, Hungary and Slovenia are all active on the day also (we will be counting EM separate from our overall SSA numbers going forward in line with feedback from clients). Chile is going once again with a Social line (this time 7yr), Hungary is looking at a dual-tranche to include long 9yr and long 15yr whilst Slovenia is opening the year by tapping the long end of the curve with a new 30yr benchmark.

Live Deals

Belgium's first visit to the market in 2025 is predictably for a new 10yr benchmark (June 2035 maturity) and with that fitting a multi-year trend points to the likelihood of a follow up deal in the first 2 weeks of February for a long dated new deal (in the past 30 or 50 year deals have been done). Today's IPTs have been circulated at m/s+68a, which compares to the m/s+39a touted for the new KfW 10yr (see below). A look at the OLO curve (and a simple interpolation) would suggest a fair value in the region of m/s+65a which would fit neatly with IGM collected data that suggests, on average, that the Kingdom ordinarily sees 1.9bp shaved from IPTs to reoffer (excluding the Feb 2022 issued new 30yr when a starting NIC of around 16bp was employed and despite 12bp of spread compression a 4bp NIC was left on the table). In terms of expected deal volume, in the last 2 years both new 10yr deals have been sized at EUR7bn and it seems intuitive to expect the same (or very similar) today.

KfW has an annual funding target this year of EUR65-70bn, which is down from the EUR80bn target that was fully achieved in 2024. This year it expects to raise EUR10bn by the way of green bonds in comparison to EUR10-13bn target (with the top end achieved) from the prior year. For the second year in a row the issuer, which had previously avoided (by outcome rather than purely by choice it would appear) dual-tranche transactions will open their EUR accounts via that pathway. Mirroring last year's opening gambit from the issuer (in euros) today's transaction sees the expected creation of a new long 3 yr benchmark and a preset size of EUR3bn for the 10yr leg of the deal. For context last year's 3yr was ultimately sized at EUR6bn (into a EUR19.5bn order book) whilst the 10yr appeared to be far more popular with investors with demand settling at EUR27.5bn (the 4th largest ever order book for KfW). IPTs of m/s+14a and m/s+39a have been communicated this morning (spreads on last year's deals were m/s-5 and m/s+13 for some context in the ongoing widening of SSA spreads) which, as is customary with KfW, appear to be just above fair value (calculated via interpolation across its extensive and highly liquid EUR curve). It appears a starting NIC of 2-3bp is in play on the 3 year and a touch less on the longer line, perhaps in part due to the expected preference for that tenor after last year's experience? Whatever the case with order updates flooding in at the time of writing it seems plausible that KfW could get around EUR9bn of its funding completed in one hit - which with this year's lower target would represent nearly 13% of its annual plan.

From the USD deals that went live yesterday afternoon (and DBJ which started marketing yesterday morning) IOIs are now been circulated and price guidance levels being reconsidered in many cases. Notably there have been early book updates from the European Investment Bank (EIB) (new long 5yr conventional) and Asian Development Bank (ADB) (new 3yr benchmark) that point to the USD market being in rude health. The former recorded an IOI of USD25bn which was deemed sufficient to slash 3bp from IPTs and finalise the level, whilst for ADB the IOI was a little lower at USD11.4bn and price guidance was updated from SOFR m/s+34a to +32a (thereby leaving room for further finessing). An update for the World Bank's (IBRD) proposed 7yr sustainability line is also in and at USD9.bn IOIs the deal would likely have stood out barring the exceptional numbers seen from ADB and EIB. In turn the IBRD 7yr has also seen 2bp chopped from IPTs (price guidance currently SOFR m/s+55a) retaining the option for more amendments in line with the path taken by ADB.

---- Subscribe to read more ----

To receive this analysis plus much more, subscribe to IGM. Request your free trial of the service today.