SSA WEEKLY: Slovak Republic performs as pace remains lethargic

• In euros there was little to write home about in terms of overall volumes with the headline EUR5bn figure flattered by the inclusion of EUR1bn in EM issuance (IsDB and Export-Import Bank of China) and a EUR1bn tap of an existing Apr 2029 green line from KfW
• That left just EUR3bn of ‘new’ issuance with a solid performance from the Slovak Republic (EUR2bn, 10bn NIC & 3.75x covered) perhaps overshadowing a weak showing from Kommunalbanken (EUR500m 7yr) - which wasn’t fully covered & saw no spread compression from IPTs - and a less stellar than expected outturn from Agence France Locale (EUR500m 8yr sustainability). That may seem a little harsh since it achieved a 2.8x cover ratio but comes amidst an ongoing purple patch for French agencies that has seen them achieve an average 6.1x cover ratio in 2024
• From the dollar market, European interest this week came from Swedish Export Corp (SEK) and the Kingdom of Belgium. The former came as a 2.5yr FRN where no books were disclosed (not usually a good sign) whilst the Belgium deal took a 10yr tenor and achieved a cover ratio of just 1.1x (compared to 2.2x for its 30yr priced in Apr 2024)
• The New Development Bank placed a USD1.25bn 3yr green at SOFR m/s +80, some 10bp inside IPTs

KfW inching towards fully funded

KfW accounted for a EUR1bn of the week’s EUR5bn in supply with an Oct 2029 green tap conducted Monday. The transaction saw weaker than expected demand for an issuer used to being in the spotlight with the deal finally landing in line with IPTs and also fair value. The EUR990m order book provided a 99% coverage of the tap size and pushed the issuer to almost 97% fully funded for the year.

Orders books a touch weaker than expected?

There were two ESG related trades to keep us occupied on Tuesday with one performing far better than the other in terms of coverage. Agence France Local saw a final EUR1.4bn placed in the order book for its EUR500m short 8yr sustainability line and whilst that was lower than we had expected, given how well French issuers have recently shown on that front, it still far and away outshone what happened with Kommunalbanken AS. The Norwegian issuer brought a EUR500m 7yr green line but failed to see the deal size fully covered, achieving just EUR430m peak and final books and pricing in line with IPTs of m/s +31a.

Fair value on the trade was a little more troublesome than most to arrive at with bonds of similar maturities from Scandinavian peers MuniFin, KommuneKredit (et al) implying a figure in the mid to high-20s (with a large caveat on stale secondary pricing levels) and a recently issued 7yr from SEK (Sept 2031 maturity) indicated on screens at around i+33-34a. Whatever the case, investors appeared to swerve this one, with a huge differential apparent between this and its last green EUR outing in Apr this year that saw the placement of a EUR500m 5yr into a EUR2.3bn book.

Slovak Republic follows in its own footsteps

The Slovak Republic adhered to its own well-written script (down to the letter) this week seeing 20bp cut from IPTs to land with a 10bp NIC on a EUR2bn 7yr line. It returned to the EUR market for the second time in 2024, having not appeared this far through the calendar since Oct 2022. Over recent years the issuer has been to the market with a variety of maturities ranging from 5 to 50 years but with its benchmark curve now looking more 'mature' it appears to be looking to fill in gaps in the maturity profile. With around EUR3bn maturing in 2031 and EUR6-6.5bn in the years either side (coupled with its recent deal volume history) we were expecting a deal size of around EUR2bn from the outset. The charts below show that demand for the issuer's paper has been steady over the years and that, in general, it offers a decent (and dependable) NIC when conducting a new transaction with an average of 12.7bp left on the table since 2016.

Dollar issuance slows to a trickle

On the dollar side, the pace has slowed considerably of late with just USD6.45bn priced over the prior 2 weeks. That included a 2yr from KfW, a long 2yr from L-Bank and a short 2yr from Kommuninvest i Sverige AB. No surprises then that this week’s main action, from a European perspective, came from once again from an issuer with a short-dated maturity (also close to 2yr). The Swedish Export Credit Corp (SEK) brought a new 2.5yr FRN that priced in line with IPTs of SOFR+35.

The Kingdom of Belgium also came back to the USD market (and inadvertently spoiled the run of 2yr deals that had been building) for the second time this year bringing a USD1bn 10yr at SOFR m/s +64. Demand this time around was relatively lacklustre peaking at just USD1.1bn whilst its 30yr launched in Apr had witnessed USD2.75bn of demand for a USD1.25bn deal size. For context, the two syndicated dollar deals this year from Belgium come on the back of an absence in that particular market since 2020.

Looking ahead – election, election, election

For most week’s the look ahead revolves around trying to anticipate how economic releases or CB activity might impact go or no go calls on specific days. However, with the US election in full swing from Tuesday and no guarantees that a verdict will be reached in quick time the impact of this specific event is a bit more open-ended (even if there is an unexpected landslide, markets will take time to decipher what that means going forward).

From this perspective we feel (very) comfortable in predicting that USD issuance from SSAs will be minimal (erring towards zero) and on the European side of the Atlantic we would expect any issuance to be small in volume and attempt to navigate the brief window of opportunity that Monday affords.

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