SSA SNAPSHOT: On your marks, get set....GO!

We start the New Year with names that have been in the pipeline since pre-Christmas, which feels like a new dynamic for the SSA sector. It may well be that the timing of the first weekend of the year, just 2 days after the first business day, is playing a large part in how this panned out but nevertheless gives an early indication that the month will be busy. Issuers, even ones that are well known for coming early - we're looking at Lower Saxony here of course - are seemingly scrambling for investor attention in an attempt to better navigate what could be fairly choppy waters given the expected volume of deal flow. To put things into some sort of perspective the market is largely expecting a continuation of last year's issuance dynamics which saw front-loading into January on a scale that we hadn't quite seen before (see 2024 SSA Issuance Review below). SSA issuance volumes (excluding EM sovereigns) in Jan 2024 totalled EUR159.76bn, up dramatically from EUR105.78bn in 2023 and still way ahead of the previous monthly high of EUR114.25bn achieved in 2021.

Live Deals

Lower Saxony has a long history of opening (or co-opening) the SSA market in January with IGM data pointing all the way back to 2017 as the starting point of the trend. It has been the only issuer on the 'opening day' of the year in each of the last 5 years, rushing to the market ahead of the likes of KfW, EIB, Rentenbank, BNG Bank and NWB on the Supra and Agency side of the fence and early Sovereign movers which often include the Republics of Italy and Portugal and the National Treasury Management Agency (Ireland). Adding to the sense of urgency this time around the Dec 17th (2024) dated mandate announcement also detailed that the issuer would be looking at a dual tranche transaction to kickstart proceedings (to include 5yr and 10yr). This is a first for the issuer, certainly in the period since 2017 that we already highlighted.

With spread levels for SSA names still elevated after swaps collapsing in the latter part of 2024 the entire exercise appears to almost be a show of strength from the issuer, which is seemingly willing to break the ice in the LSA market in not one but two locations simultaneously. There is clearly work to be done in terms of price discovery for new LSA deals with the last new transaction now almost a month ago when Bavaria (Freistaat Bayern) placed a EUR500m 8yr at m/s+32 and with Lower Saxony more than willing to play the 'first-mover' role (which in this instance doesn't clearly carry with it an advantage). As a reminder, only EUR1.25bn crossed the tapes in all of December in the SSA sector with all of that coming from German regional issuers culminating in a EUR250m tap on the 9th Dec from Freie Hansestadt Bremen.

In terms of pricing, Lower Saxony has pitched IPTs for the 5yr tranche at m/s+31a and at m/s+43a for the 10yr. With no recent deals to work from this may boil down (for many interested parties) to looking at fair value in terms of a spread differential over KfW. That said, with regards to the 5yr there were deals from the Free State of Thuringia (EUR250m tap of Sept 2029), Freie und Hansestadt Hamburg (EUR250m tap of Oct 2029), Bremen (EUR500m 5yr / Nov 2029 maturity) and Brandenburg (EUR700m 6yr) in mid to late November that could act as a barometer with spreads ranging from i +26-27a for former two names, i+28 for the Nov 2029 Bremen and i+32 for the longer-dated Nov 2030 from Brandenburg. At face value that would suggest a fair value in the region of i+29a for the new 5yr. For context an interpolation across the KfW curve in the 5yr region throws out a figure in the region of i+23a leaving a pick-up of c.6bp to our calculated fair value. A similar exercise on the 10yr is also theoretically possible with the caveat that the last new 10yr LSA came back in mid-October (Land Baden Wuerttemberg EUR650m green) and with the penultimate 10yr LSA of the year all the way back in late August (Land NRW EUR1bn). Utilising those deals would suggest a fair value in the region of m/s+41 area, leaving just a 2bp pick-up to the IPT of +43a.

Also already in the pipeline (since the 19th December 2024) is Bpifrance which will be concluding investor calls today ahead of a new 5yr (Feb 2029 maturity) social bond. Its keen approach to mandating and investor calls scheduled either side of the New Year point to the possibility of us seeing the first Friday deal of 2025 coming as early as the 3rd of January.

In the sterling market two names are already on screens this morning with the Council of Europe Development Bank offering a new 3yr social inclusion bond (at Sonia m/s+32a) being joined by the Inter-American Development Bank (IADB) which is seeking to tap an Oct 2029 maturity line by a minimum of GBP300m (at Sonia m/s+41a). The former is often an early mover in January with multi-year history of deals in euros in the first 2 weeks of the year whilst in GBP its propensity for early deals is a little more sporadic having been seen on the 18th Jan in 2022 and the 4th Jan in 2023 only to be completely absent until the month of October in the year just gone.

2024 SSA Issuance Review

Please find a link to our latest SSA Viewpoint which takes a deeper dive into the year just gone: SSA VIEWPOINT - 2024 the year of front-loading

Key Takeaways:

• Total annual volumes across the major asset classes (SSA, FIG, Covered and Corporates) this year rose to EUR1.491tn from EUR1.292tn in the prior year
• That came as SSAs (the major driver of EUR volumes) saw a marked increase in the volume of new funding over the previous year, increasing from EUR468.13bn in 2023 to EUR552.22bn this year (and from EUR499.63bn to EUR596.57bn if we include EM sovereigns as we have done in the past)*
• Issuance patterns were again frequently interrupted by issues ranging from war in Ukraine and the Israel-Hamas conflict to the seemingly perpetual uncertainty surrounding the pace of rate cuts across various jurisdictions
• We expect the pace of SSA issuance in 2025 to continue in line with 2024 (and perhaps even accelerate slightly) driven by larger funding from the EU and an expectation that Supranational issuance will hold up in euros (and potentially rise in USD).
• German political uncertainty, with election due in February adds a blurry layer to proceedings but not 100% certain that debt brake issues will be addressed (market expecting Lander issuance to be very slightly down on 2024)
• Trump administration could have a major impact on trade with knock-on effects felt in corporate new issue activity. With regards to Ukraine any pull back from the US in terms of funding could see European institutions having to ‘plug the gap’ so to speak, with the most likely candidate the EU (although EIB could be dragged into the frame too)

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

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