SSA SNAPSHOT: Pre-ECB/US CPI surge hits screens

There is a similar amount of activity (deal number wise) in both euros and dollars on Tuesday after a host of names either announced mandates or, in the case of dollar deals, kickstarted marketing processes with the communication of IPTs. We all knew that the European Union was in town this week and they haven't really surprised with the announcement of yet another dual-tranche deal. This time around they are bringing a new EUR5bn long 7yr (Dec-31 maturity) and a longer dated tap (which is quickly becoming a staple of EU issuance) in the shape of a EUR4bn increase of the Feb 2050 green bond.

Issuers are no longer waiting on the sidelines to see the EU parade either. Three other euro issuers are coming too, bringing new paper with a generally longer-dated bias. Spain's Instituto de Credit Oficial (ICO) comes bearing the shortest maturity of the day with a 6yr conventional transaction whilst Polish state development entity Bank Gospodarstwa Krajowego (BGK) is mirroring the EU in relation to a dual-tranche approach, although it has opted for 10yr and 20yr tenors. The Republic of Italy is looking at the longest maturity of the session hoping to use the syndicated market (having cancelled long-dated auctions for this week) to create a new long-dated bond - bringing an Oct 2054 line to replace the Oct 2053 line as the 30yr benchmark. Some recent curve steepening should support maturity extensions, especially since the new bond is likely to have a yield in excess of 4%.

On the dollar side of the ledger a growing list of who's who in the world of supranational development banks threw their hats into the mix over the course of Monday's quiet session. The impetus was provided by the African Development Bank (AfDB) with a mandate announcement for a 5yr with a social label coming not long after 9:30am (London time). That was followed up with IPTs almost 3.5hrs later, coinciding roughly with the release of IPTs for a 7yr (benchmark) from Inter-American Development Bank (IADB) and a USD750 (wng) 2yr from IDB Invest (the private sector focused member of the IADB Group). With all that going on Kommuninvest managed to sneak quietly onto screens (during the morning session) with an Aug 2027 maturity whilst the Province of Ontario waited until much later in the day to start marketing its 5yr line.

Live Deals

A few things stand out from this morning's proceedings. Firstly, the Republic of Italy order book which has blasted from the blocks to a staggering (and more EU like) figure of EUR108bn which subsequently swelled to EUR130bn!!. There were questions circling the market as to whether Italy would be able to print a larger sized deal. Recall that the last 30yr was issued in Feb 2023 with an initial deal size of EUR5bn (and since increased by syndication). Today's order book will allow any conceivable deal size to be considered! Despite the excitement around the issue spread compression has been limited to 2bp, leaving final spread at BTPS +13bp. At a cursory glance that appears to be fairly generous in terms of roll although the long end of the curve, with its bonds of varying coupon rates makes the assessment of fair value a little more tricky than may usually be the case.

The EU is sticking to its new transaction trends to the letter, with the longer dated tap capturing far more attention than the new shorter dated line. At the same time we have seen 2bp sliced from each IPT to land with NICs that appear to be in the region of 2-3bp apiece (again following the EU 'script’ perfectly). In terms of bragging rights, as things stand the combined order book is EUR115bn and still a little short of the insane amount of investor appetite for long-dated Italian paper.

In terms of the dollar transactions Kommuninvest perhaps leaps out with IOIs that were returned signalling USD3.3bn of demand. That would provide a significant cover for the USD1bn deal size and will provide well needed confidence to the issuer after last week’s EUR deal failed to deliver in terms of investor interest (0.83x cover) despite offering a mid-single digit concession on that occasion (KommuneKredit also had to offer a similar concession but achieved a 1.9x cover in the end).

The African Development Bank's (AfDB) initial IOIs of USD2.5bn have been steadily built upon to see the 5yr line's order book now at USD3.3bn and with final spread set at SOFR m/s+41 (1bp inside IPT).

Priced last week (and KfW from Monday)

• EUR issuance last week stalled at EUR8.1bn, with all deals coming before the end of Wednesday, meaning that the YTD total still hadn’t quite reached its next major milestone - settling for the time being at EUR489.2bn.
• The ESM provided the highlight of the week as its EUR2bn 10yr received orders of EUR9.3bn.
• Elsewhere, there was a building sense of unease as a weaker backdrop exacerbated the impact of recent high volume issuance.
• Scandinavian names Kommuninvest and KommuneKredit both left NICs of 5-7bp on the table without meaningful excess demand rushing in.
• In dollars, SEK priced a 3yr through CADES (which issued without a social label for the second time this year in USD), whilst Corporacion Andina de Fomento blew the doors off (USD10.7bn book) for a long 3yr at SOFR m/s+80.
• For the full report in the original PDF format click here: SSA Weekly - 6th September 2024

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