The European Union waded into the primary market with a dual-trancher on Wednesday, including its inaugural three-year syndication, and achieved one of the lowest spreads to mid-swaps ever seen on a euro SSA transaction.
Record-wide swap spreads have made even those deals coming well through mid-swaps very appealing on a relative value basis.
The supranational, issuing under its NextGenerationEU programme, placed a new €6bn July 2025 alongside a €3bn no-grow tap of its 0.7% July 2051s. Despite an eye-wateringly low spread of mid-swaps minus 41bp on the short note and plus 22bp on the longer leg, the deal drew a combined book of over €85bn.
“This will come at very decent spreads over Bunds and other EGBs, so the three-year especially was a bit of a no-brainer for investors,” said a banker. “It is also large and liquid and you also get a good absolute yield.”
BNP Paribas, Goldman Sachs, NatWest Markets, Nordea and UniCredit began marketing the notes at guidance of minus 38bp and plus 24 areas.
Syndicate officials offered differing views on fair value but agreed that concessions were either very low or potentially even slightly negative on the three-year.
“It also speaks to the way the market is, with rates and SSA,” said a second banker. “It is a more comfortable market with big, liquid names like the EU, which is where people want to be given all the volatility. This is not the case in some of the asset classes.”
The EU had been considering whether to execute the three-year through a syndication or auction. But with the borrower looking to raise €6bn with the note, bankers said the size was more appropriate for a syndication.
It was also weighing up whether to bring a 20-year tap rather than a 30-year. Some bankers had wondered whether, because of the inversion in the swap curve, doing a longer tap would force the EU to pay a considerable premium. On Wednesday, the 20-year swap rate was around 1.88% and the 30-year was around 1.57%.
“They still have a large programme to fund, and knowing that they didn’t want to do a large trade in the long end, because for the EU €3bn is not large, you go for the more expensive and potentially trickier part of the curve and you keep the 15 and 20-years for the larger trades,” said the first banker.
“Also, in April, they did a €6bn 20-year green bond and they did a €2.17bn tap of the June 2037s recently as well, so that is already a lot of activity in this part of the curve and, yes, there is depth there but you should be saving it for the biggest or most important deals.”