Public sector US dollar issuance is picking up, with three issuers in the market, bolstering the meagre supply of deals denominated in the currency so far this year.
The European Investment Bank and Ontario Teachers' Finance Trust each announced IPTs on Tuesday, while Inter-American Development Bank set final terms on its latest trade. These deals are providing some relief in what has been a very sparse dollar SSA primary sector this year.
“Volumes are massively down in dollars. The market is just not as deep as euros and doesn’t benefit from the same level of domestic support,” said one banker.
“The demand we saw when spreads were wide of USTs has gone away somewhat, so we have US dollar-based supras looking at euros, for example, and many of the smaller European agencies that were doing a fair bit of US dollars are refocusing on euros. There’s no liquidity in dollars either; the flows have really dried up.”
US dollar issuance for the first quarter came in at just above US$55bn, according to Refinitiv data, the lowest level since at least 2010, marking a fall of more than 35% on the US$85bn issued during the first three months of 2021.
For EIB, the decision to take to the market was a reflection of its needs and funding calendar. “The dollar market is functioning fine, and it is a strategic benchmark market for them,” said a second banker.
On Tuesday, the supranational announced the mandate for a no-grow US$3bn three-year through Bank of Montreal, Goldman Sachs and Royal Bank of Canada. IPTs for the trade are 24bp area versus SOFR mid-swaps, which was equivalent to around 12bp over the three-year Treasury at the time of announcement.
A new three-year benchmark should make sense to investors, given the 3s/5s Treasury curve is currently inverted, said several bankers. EIB’s choice of tenor, however, was not purely a reflection of this. The issuer has sold five-year and seven-year benchmarks in the dollar market already this year.
Ontario Teachers' Pension Plan Board is out with a benchmark five-year via Bank of Montreal, Citigroup, JP Morgan and Royal Bank of Canada at IPTs of SOFR mid-swaps plus 56bp area.
On Tuesday, IADB set the spread on a US$1bn five-year FRN in line with IPTs, at SOFR plus 28bp, having attracted a book over US$840m at the last update. Citigroup, Deutsche Bank and Nomura led the deal.