SSA WEEKLY: Back with a bang
- EUR13.5bn made it onto screens and into investor hands this week taking August’s issuance to EUR1bn short of the average monthly haul (calculated over last 10 years) which stands at EUR15bn. World Bank (IBRD), KfW and the Republic of Finland all played an important role in reopening the market but did so with cover ratios (averaged out at 1.67x) that looked a tad lacklustre compared to the weekly average (4.5x) for 2024
- In dollars, the week was wholly represented by supranational issuers which inadvertently joined forces to provide USD16.1bn of new paper with a heavy bias to that with sustainability labels (USD6.8bn or 42% of dollar SSA issuance)
An LSA to kick off, Hesse 10yr sized at EUR1.5bn
Monday turned out to be the most active day in weeks for SSA new issuance with 3 deals getting over the line and several more mandates (EUR and USD) added to the pipeline. Pricing in the single currency was State of Hesse with a new 10yr LSA. Coming at that tenor and also being a more frequent issuer (and perhaps with a few more investors back from holidays) the deal saw an encouraging early response with order books climbing as high as EUR1.75bn. That was enough to see final pricing squeezed in by 1bp to a final m/s+20, although the book finalised at EUR1.65bn and was almost fully utilised as the deal was sized at EUR1.5bn. It came on the back of a MECVOR 9yr which priced at m/s+17 (the previous Wednesday) and with the issuer's own underlying curve suggesting a fair value in the region of m/+17-18. Recent(ish) 10yr LSA issuance from Schleswig-Holstein, Saxony and Brandenburg (all issued in May 2024) were indicated on screens between i+16.5-17.5 bid on the morning of the deal.
Other early action targeted GBP market
In sterling, KfW joined Oesterreichische Kontrollbank to raise GBP300m apiece with the German stalwart increasing an existing Feb 2026 line whilst the Austrian issuer brought a new short 5yr deal. Both deals (as is often the case with small GBP denominated trades) priced in line with IPTs (at UKT +60 and SONIA m/s +34 respectively) with KfW notably reverting to quoting a spread over UKT and in line with the convention used to price the original deal (UKT +81 in Jan 2023).
Finland places EUR4bn deal (again)
The sector went through all the gears Tuesday with plenty of new issues and even more talking points. Starting with the single currency offerings and the Republic of Finland didn't disappoint as its second consecutive EUR line was sized at EUR4bn. Recall that for years the issuer had launched deals sized at EUR3bn, including its first outing of 2024 (a long 30yr transaction). Orders reached a robust EUR10.3bn but were still a far cry from the EUR23bn that lined up for its last EUR deal (a 10yr) in Apr. Pricing this time around was arguably a touch more aggressive as, at m/s+10, it was more in line with fair value according to our calculations.
Away from that, BNG Bank priced a EUR1.5bn 10yr social bond into EUR1.8bn of orders leaving a 3bp NIC on the table. The Dutch issuer priced its deal 1bp inside IPTs of m/s+34a. This was its 4th social deal (proceeds for social housing) of the year, taking the social tally up further from the EUR3.5bn already issued YTD and marking a return to the format after its last outing came with a sustainability label (EUR1bn 7yr). Looking at previous years' patterns of issuance suggests that EUR deals in August and/or September are often the last foray into the EUR markets for the issuer but usually with an annual tally of around EUR6bn in the single currency. This week’s deal size of EUR1.5bn saw that level reached. However, to caveat that we would note that with a wide range for annual long-term funding of EUR14-18bn and with USD4.5bn of funding also already under its belt there is probably still scope for further EUR issuance but that would be expected to surface in November if history is any guide.
World Bank (IBRD) kept itself (very) busy and set a record…
The World Bank (IBRD) came to the market with a multi-pronged attack that involved multiple tranches and a dual-currency (all sustainability) approach. The euro element took a 7yr tenor and was sized at EUR2.5bn with orders mounting up to a peak of EUR3.9bn. Its other tranches came in dollars (mandated a few hours after the EUR line) as it brought 2yr and 10yr tenors to market with a distinct preference from investors for the shorter deal. Demand peaked there at USD14.9bn, representing the largest order book ever for a single tranche from the issuer although a still respectable USD7bn was tallied up against the 10yr.
…but orders were higher still for EIB 5yr
Despite the fervour surrounding the short IBRD dollar deal it was the European Investment Bank (EIB) that recorded the largest order book of the day (and the week) as its USD5bn 5yr witnessed orders of a whopping USD25.4bn coming close(ish) to its own order book record (USD28bn recorded in Jan 2024 via another 5yr). Two basis points were trimmed from IPTs to land at SOFR m/s+38 and with zero NIC.
In contrast, the Development Bank of Japan went almost under the radar, quietly building a USD1.25bn order book for a 2.08x cover of its USD600m 3yr deal. Final pricing was 3bp inside IPTs leaving very little in the way of a concession over the issuer's growing USD curve. Notably, the issuer is yet to visit the euro market in 2024 having made at least one visit in each year since 2020 (for a total of EUR3.4bn over 5 transactions).
KfW reach lower end of green issuance target
There was a noticeable slowdown in deal numbers at the mid-week point. However, two heavyweights of the sector brought deals to the market making up for a lack of numbers with size and quality. One transaction apiece was priced in the two major issuance currencies. German development bank KfW was back in the green bond space, this time via a EUR3bn long 5yr transaction which pushed YTD ESG issuance for the borrower to just beyond EUR10bn (recall it has a EUR10-13bn green bond issuance target). That may perhaps leave scope for one more benchmark sized green deal (just about) and/or a combination of other currencies but should be seen in the context of the issuer's reduction in full year issuance programme from EUR90-95bn to EUR80bn which was undertaken whilst holding the green target in the same range.
In dollars, Asian Development Bank (ADB) added a further USD3.5bn to the week's issuance from supranationals with a new 5yr vanilla line. A solid orderbook at IOI stage went on to grow further throughout the day, eventually topping out at USD6.8bn, with pricing being set at SOFR m/s+38. That level was both 2bp inside IPTs and 2bp above fair value according to a simple interpolation across the issuer's curve.
MuniFin pragmatic with new 5yr pricing
The SSA space mirrored the prior day in the sense that we ended up with a single deal priced in each of the major issuance currencies. In euros, Municipality Finance Plc went with a 5yr tenor and in conventional format for its second single currency deal of the year. The order book finalised at a modest EUR1.35bn (by the issuers' robust standards) with the deal sizing at EUR1bn. Interestingly, the issuer sought to keep pricing in line with IPTs leaving a c.6bp NIC by our earlier calculations. Existing lines around the current 5yr point are heavily dominated by green bonds with an interpolation across these lines suggesting a fair value in the region of m/s+10bp. Given MuniFin's dedication to the creation and upkeep of a benchmark green curve, and its track record on the ESG front, it may indeed be the case that those bonds should trade just inside the vanilla curve, hence the 6-7bp initial assessment (in the day’s SSA SNAPSHOT) and the subsequent settlement on 6bp.
In dollars, International Finance Corp (IFC) increased the year's floating rate tally by an additional USD800m with a 4yr transaction that comes on the back of IADB on 25th July (USD1bn 5yr) and the more unusual dual-FRN from IBRD on 17th July (USD2bn Jun 2027 and USD700m Feb 2031).
Looking ahead
In previous years the month of August has seen an average euro issuance of just shy of EUR15bn. This weeks tally added to the MECVOR deal from the prior week puts us just EUR1bn short of that average, with the volume of activity next week set to be broadly in line with what we have seen this week (if market expectations are fulfilled). Already in the pipeline we have EFSF which has sent an RFP to banks whereas a mandate announced this morning by the UK sovereign is for a deal further into the future (for a Jan 2040 maturity Gilt due week commencing 2nd Sept). Back to EFSF and it looks likely that it will make a move Tuesday, with a bank holiday scheduled in the UK. The issuer is currently EUR15bn into a EUR20bn annual issuance programme and has completed a deal as large as EUR5bn in the recent past (6yr in Jan 2024).
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