SSA SNAPSHOT: Will Spain go even bigger?

Here at IGM we started the week with expectations that we were heading for the higher end of the week's estimate range (EUR16-45bn, with a EUR30.5bn average as a reminder). Market chatter for the likely emergence of at least 3 sovereigns over the course of the week sealed our view and today’s lineup more than delivers in terms of high profile issuance that could help in that direction. Leading the charge is the Kingdom of Spain, which has launched a new EUR Apr 2035 syndicated transaction, marking its first major move in the 2025 capital markets. Recent demand dynamics for new bonds from peers (Italy and France in particular) hints at the possibility of an ambitious target, with our expectation for a deal size comparable to or even exceeding the EUR15bn 10yr transaction that opened its 2024 funding program.

The Republic of Finland also makes its entrance with a EUR3bn no-grow Apr 2045, opting for a 20yr maturity having utilised a 30yr tenor for last year's opening salvo. Adding to today’s high-quality euro supply, Land Bremen is in the market with a EUR500m no-grow 8yr LSA transaction, which looks set to capture some of the excess demand that has been floating around in the LSA space. Indeed, it will be interesting to see if it can follow large order books from Land NRW (EUR2bn 5yr, 4.8x cover), State of Hessen (EUR2.5bn 7yr, 3.48x cover), Saarland (EUR500m 10yr, 7.2x cover) and Land Baden Wuerttemberg (EUR1bn 15yr, 7.6x cover) which together serve to show that there isn't currently a favoured tenor acorss the curve for LSA issuance.

In the niche space, Italy’s Istituto per il Credito Sportivo e Culturale is bringing a EUR300m 5yr social bond. Meanwhile, SNCF is catering to green-focused investors with a GBP 30yr green bond, providing further diversity in the day’s offerings.

Across the Atlantic, we’re seeing a return of USD-denominated issuance after the inauguration of President Trump (and MLK Day) with three deals hitting the screens during the prior session. French agency issuer Caisse des Depots et Consignations (CDC) has launched a USD 3yr transaction with IPTs at SOFR m/s +58, while Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden NV (thankfully known as FMO) is targeting a USD500m no-grow Apr 2028 bond at SOFR m/s +39 IPTs. Rounding out the trio, the OPEC Fund for International Development is also marketing a USD 3yr deal at SOFR m/s +68 IPTs.

Yesterday’s session was nothing short of remarkable, with the Republic of France and the United Kingdom both setting records for demand at the 15yr tenor. France’s EUR10bn May 2042 line attracted an astounding EUR134bn in orders, while the UK’s GBP8.5bn Jan 2040 gilt tap achieved a record-breaking GBP119bn order book, the largest for any UK deal to date. Lithuania successfully placed EUR2bn across 5yr and 15yr maturities, while OMERS Finance Trust and MuniFin showcased immense demand for their respective EUR10yr and EUR5yr deals, each pricing with significant spread compression due to overwhelming books.

Given the strong momentum from yesterday’s blockbuster session, today’s issuers will be closely watched to see if demand dynamics continue to support larger-than-anticipated deals. With sovereigns, sub-sovereigns, and dollar borrowers all vying for attention, it could shape up to be another standout day in the primary market.

Live deals

** We have been waiting patiently for the emergence of Spain, especially since the bumper issuance from Italy, in the belief that it could do something quite special. Last year Italy (again) made the first move and printed EUR15bn across a dual tranche (10bn 7yr and the remainder 30yr tap) into orders of EUR155bn, quickly followed up the next day by a EUR15bn single 10yr tranche from Spain (orders topped out at EUR138bn). Fast forward to this year and Italy placed an EUR18bn dual tranche (EUR13bn 10yr and 5bn 20yr green) into orders that reached a quite astounding EUR269bn (that's over a 1/4 trillion!). With that in mind we have been expecting great things from Spain's first outing and with yesterday's huge order book for a new EUR10bn 15yr OAT (orders of EUR134bn) only serving to strengthen that view. We are not suggesting that Spain will not want to be 'out done' by Italy but more a case of not wanting to pass up an opportunity to take FULL advantage of the current huge depth in demand. IOIs whilst an unusual thing to see on a EUR denominated deal have been communicated at EUR110bn+ (incl EUR7.5bn JLM interest) along with guidance at SPGB+8 (that appears to be around +5bp starting NIC when interpolating across the SPGB curve).

** Finland hit the euro capital markets on three occasions last year, breaking with years of tradition to size two of those transactions (Apr and Aug) at EUR4bn and not in line with the usual EUR3bn that we had seen on every occasion (19 in a row to be exact) since Feb 2017. That made sense in terms of a higher borrowing requirement of EUR14.4bn for 2024. That requirement is down to EUR12.5bn for this year. That could still mean we see just three 3 EUR deals once again but with maybe only one (if any) of the later deals being sized at EUR4bn or a decision not to visit the USD market this time around (it placed a USD1bn 10yr, its first in USD since May 2020). An IPT of m/s+77a implies that a starting NIC of around 6-7bp may be in play.

** Land Bremen has released IPTs for it EUR500m 8yr at m/s+34a. Bear in mind that Berlin and Hessen landed 7yr lines already this year at m/s+33 and +32 respectively whilst a look at the Bremen curve would suggest a fair value at i+34area so it will be interesting to see where this one lands and with what level of demand.

New Mandates

** Île-de-France Mobilités (Syndicat des Transports d'Île-de-France, Ticker: IDFMOB Govt), Île-de-France Public Transport Authority, rated Aa3 negative outlook by Moody's and AA- negative outlook by Fitch, has mandated BNP Paribas and Crédit Agricole CIB as Green Co-Structuring Agents and Joint Roadshow Coordinators to arrange a Global Investor Call and a series of investor meetings to introduce its inaugural EuGB in accordance with Regulation (EU) 2023/2631 of the European Parliament and of the Council (the “EuGB Regulation”).

For this purpose, Île-de-France Mobilités has published a European Green Bond factsheet and received a positive pre-issuance review from KPMG S.A.. An equivalent amount of 100% of the proceeds will be used to finance or re-finance EU Taxonomy-aligned assets and expenditures that contribute to the EU environmental objective of climate change mitigation. All relevant documents (EuGB Investor Presentation, EuGB Factsheet, Pre-issuance review and Preliminary Prospectus) are available here.

The new EUR long-dated Inaugural EuGB benchmark transaction will follow in the near future subject to market conditions. BNP Paribas, Crédit Agricole CIB, HSBC, Natixis and Société Générale are mandated as Joint Lead Managers on this new transaction. Manufacturers' target market (MIFID II/UK MiFIR product governance) is eligible counterparties and professional clients only (all distribution channels). No PRIIPs regulation key information document (KID) has been prepared as not available to retail in EEA or the UK. FCA/ICMA stabilisation. The Global Investor Call will take place on Friday 24th of January at 11:00 CET and will consist of a 15-min presentation followed by a 15-min Q&A.

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