Kommuninvest put concerns around demand for US dollar SSA paper to rest on Tuesday, printing an almost three-times-covered US$1.25bn July 2024, with demand helped by the healthy concession offered at the start.
The Swedish agency, along with Tokyo Metropolitan, was the first SSA borrower to venture into the currency after Germany's Erste Abwicklungsanstalt pulled a two-year last week, with bankers struggling to put their finger on what went wrong.
Leads Barclays, BNP Paribas, Danske Bank and Goldman Sachs managed to tighten Kommuninvest’s trade by 3bp from the 20bp area over SOFR mid-swaps IPTs, after books passed US$3.5bn.
“It’s definitely given confidence that the market is actually open,” a banker away from the trades said. “[Buyers] are happy to add risk in, as long as they know they will be able to get out of it. That’s the number one rule right now.”
Tokyo Met by comparison squeaked over the line and did not budge from the mid-swaps plus 57bp area IPTs and guidance after the US$500m issue gathered US$760m books. Barclays, Citigroup, Goldman Sachs and Morgan Stanley led Tokyo’s deal.
While Kommuninvest could have leaned on its familiarity with investors to help it print where EAA could not, the outing from Tokyo, a much less frequent name, suggests the market has settled, for now at least, since EAA’s attempt.
The banker put Kommuninvest’s new issue concession at 1bp to 2bp, saying, “In that market, 1bp or 2bp [above] is close to fair value.”
That assessment was not shared by everyone, however. A second banker said the paper was “starting quite cheap”.
He speculated the EAA’s failure may have motivated dealers to err on the side of caution.
“I think some of the leads that were on the pulled EAA trade [Barclays and Goldman Sachs led on both] were probably scarred a little bit and they wanted to be on the cautious side of things, which I think is fair. But, equally, at some stage, putting too much new concession on is something that could impact the market as well. It’s very good that they were able to claw back at that and print at plus 17bp. So, a good result for them, but potentially a little bit of an impact on secondary spreads when they announced the trade at 20bp area.”
A lead manager disagreed that IPTs were wide, putting fair value at 16bp. "A 4bp premium is not huge to start and landing at 1bp is about as good as it gets," he said.
Tokyo was far from giving an impression of generous pricing, with its final spread flat to guidance, a development that likely has its roots in the fact that the city is much smaller and less frequent than Kommuninvest. That means more concerns around its paper’s liquidity.
“Liquidity is key and the less frequent issuers are just not offering that,” the second banker said. “Unless they come with much higher concessions, the demand is a little bit tepid, especially for the Japanese names … [They] benefited hugely in the credit convergence trade that we saw for the last three years. That’s decoupling now and I don’t think that’s fully played out.”
The market will be put further to the test on Wednesday, with Council of Europe Development Bank and CPPIB Capital both preparing transactions.
The European supranational has mandated DZ Bank, Morgan Stanley, NatWest Markets and RBC CM for a three-year social inclusion (refugee) benchmark marketed at 23bp area over SOFR mid-swaps, while the Canadian agency is looking to sell a five-year via Barclays, CIBC, JP Morgan and TD. IPTs have been set at 54bp area over SOFR mid-swaps.