SSA WEEKLY: More than EUR1/4 trillion euros chases latest EU and Italy deals

• Euro issuance burst through the EUR500bn mark (our figures include EM sovereigns) with a total of EUR22.75bn priced during the week with heavyweights European Union (EUR10bn dual tranche) and the Republic of Italy (EUR8bn) doing a significant amount of the heavy lifting. The breaking through of the EUR500bn threshold also means that YTD issuance is now higher than each of the last two full years, with over 3.5 months still to go.
• USD activity was condensed into a single day and saw 5 individual lines priced for a total of USD7.75bn. The African Development Bank (AfDB) arguably brought the standout deal with a 5yr social line that extended its dollar benchmark curve although Kommuninvest should be applauded for its efforts after a weak deal in euros in the prior week.

KfW goes green in GBP

The SSA sector was spared a complete blank (across all currencies) by the welcome presence of KfW in the GBP space on Monday. Not only was the German development bank in the market for a relatively large deal by general sterling standards (at GBP750m) but it did so with a green label. The 3yr deal came via DB, HSBC and Natwest with final pricing of SONIA m/s+25 guided from the outset and made the most of a final GBP850m order book. Interestingly, KfW’s last outing in euros was also in green format (EUR3bn long 5yr) and had taken YTD ESG issuance to EUR10bn (and the lower end of its target range), leaving scope for up to EUR3bn more green bonds before year end. We surmised at the time that the residual amount could be conducted via another benchmark transaction in euros but this week’s deal may point to the use of another option – fulfilling the requirement (if indeed they choose to fully do so) with green bonds denominated in non-euro currencies.

Tuesday splurge saw Italy challenging the EU for largest order book…

What a day Tuesday turned out to be! The EU's dual tranche (EUR5bn 7yr and EUR5bn Feb 2050 green tap) was almost eclipsed by the Republic of Italy which brought a EUR8bn Oct 2054 maturity to become its new 30yr benchmark. Final orders on the sovereigns’ single line topped out at EUR130bn and were therefore just EUR1bn shy of the combined EU book (if we didn't know better it would have looked a lot like a last-minute scramble to recount orders to not be in second place!). Jokes aside, the sheer magnitude of orders for the two transactions (and 3 lines in total) was truly staggering at EUR261bn and sounds even more impressive (somehow) if rephrased to “over a quarter of a trillion!”. A few things stood out, apart from the already mentioned, with the Italy deal seeing only 2bp whittled from IPTs to land with a 2.5bp NIC. On the EU side of proceedings, it was notable that the longer dated tap was upsized during the marketing phase, from an initial expected size of EUR4bn to its final EUR5bn. Despite that the line ended with a 15.4x cover ratio and thereby outdid the new 7yr which achieved 10.8x on the same metric. The trend for EU order books to be skewed higher in favour of tap deals (which just happen to be longer-dated in general) is still very much intact.

…with other names also joining the party

Elsewhere in euros, a EUR1bn 6yr from Spanish issuer ICO was more uneventful (relatively speaking) seeing a 1.9x cover ratio for a deal that priced with a 2bp NIC (and broadly in line with what was witnessed on the EU and Italy deals). With a CEE flavour the Polish State development bank BGK priced a EUR1.5bn 10yr / EUR750m 20yr dual tranche with 5bp NICs on each line. The shorter line may have prevailed with the largest order book in absolute terms, but the longer duration line was met with a higher cover ratio.

USD activity packed into Tuesday flurry

AfDB extended its USD benchmark curve back to the 5yr point with a USD2bn Sept2029 maturity that priced 1bp inside IPTs and with a 1bp NIC at SOFR m/s+41 (bks 3.7bn). With a shorter dated line Kommuninvest bounced back admirably following its rougher than expected outing last week in euros (0.83x cover despite a 7bp NIC) bringing a short USD1bn 3yr in line with fair value, but only after a statement inducing 4bp were slashed from IPTs (orders peaked at USD3.4bn).

IADB (USD2bn) and its group member entity IDB Invest fared ok without setting any records, with orders of USD2.2bn and USD2.3bn. The latter had set a USD750m deal size from the outset on a long 2yr transaction and so was robustly covered (2.67x) whilst the former, pricing in line with IPTs, printed a USD2bn 7yr at SOFR m/s+52. It was business as usual for the Province of Ontario which lobbed its deal into the ring late on Monday and duly received USD3.35bn of orders to land a USD2bn 5yr at SOFR m/s+57.

French trio round off the week

It was an all-French affair on Wednesday and that is when activity dried up. Caisse Centrale Credit Immobilier France (3CIF) and Societe des Grands Projets (SdGP) emerged from the pipeline with euro offerings, whilst compatriot Bpifrance came out unannounced with GBP250m Oct 2028s that priced in line with SONIA m/s +28 area IPTs on an undisclosed book. SdGP stood out among the euro pair (in demand terms), with a bumper EUR7.5bn book allowing it to print a EUR1bn (from bmk) May 2045 green at OATs +24 from an OAT +25a starting point. 3CIF saw a more measured book of EUR3.1bn for its pre-set EUR500m Jan 2028 vanilla line, but it was sufficient for the borrower to chop a chunky 6bps off OATs +32 area initial guidance.

French issuers are clearly still ‘benefitting’, in terms of offering relative value from an investor perspective, by paying higher mid-swaps spreads due to pricing over OATs. For example, CCCIF this week priced at OAT+26, which equated to m/s+33. To put that into perspective the likes of KfW, EIB, EFSF are trading in the region of i-1 to i+3a, whilst BNG Bank and MuniFin are a few bp wider at i+4 to i+7a. To find spreads in the region of high 20s to low 30s requires us to look further afield to the likes of the Japan Finance Organisation for Municipalities (JFM) which has a Feb 2028 line quoted on screens at i+31a.

Looking ahead

To predict a slowdown after the last 4 weeks of issuance, which have seen a total of EUR66bn priced, is hardly a major statement but it is the only logical one we can muster. The likes of KfW, EIB, EFSF and more frequent sovereigns (Austria, Italy) have already made a move post summer period and with this week’s deals also exhibiting more duration than previous weeks the need for a breather is pretty much self-evident. Our average survey estimate for the coming week points to EUR7bn of issuance across the sector with many participants adding that a large sovereign would need to emerge for us to hit the higher end of the wide EUR2-10bn range.

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