The European Financial Stability Facility on Monday picked up where KfW left off, bringing a dual-tranche deal in the single currency, with investors' clear preference for shorter-dated bonds on show.
The German agency made an assured start in five-year euros last week, printing a heavily oversubscribed €5bn bond with that maturity which reopened the euro primary for SSA borrowers. Bankers had expected short-dated issuance to follow and shine, given the attractive valuations versus European government bonds at the short end. The European supranational followed on Monday with a €4bn December 2025 new issue and a €1.5bn 2.375% June 2032 tap.
"We're aware that there's more demand at the short end, whether it's euros or dollars, so we were not necessarily surprised to see that sort of book," said a lead manager on the deal. "But they wanted to access two liquidity points on the curve, which is why they tapped the 10-year. It's still a good outcome – it's certainly not bad by recent standards, it's just that the short one looks unbelievable."
The rationale behind the 10-year was to add more liquidity to a tranche that had endured a difficult entrance into the primary market in June. It launched in a €2bn size that failed to move from guidance and lost close to one third of its book by launch. Here at least, leads Barclays, BNP Paribas and TD were able to move guidance 1bp from the less 5bp area starting level. Books for the €1.5bn June 2032 tap closed over €4.5bn, overshadowed by the over €19.1bn gathered for the short tranche. At landing, the concessions were around 3.5bp on the former and 2.5bp on the latter.
"It's super attractive because swap spreads are so wide," the lead said. "We've had a lot of discussions about short-dated issuance with clients, which we hadn't had for a long time – but I'm not surprised, really."
The 10-year tap priced at 84.5bp over Germany, while the three-year offered a spread of 73.6bp.
The lead added that the five to seven-year part of the curve also looked attractive but that there was an advantage in going first into the market.
While other bankers have said that issuers should keep the three-year option for later in the year should conditions deteriorate, the lead said that by going short, borrowers would be able to raise large chunks of funding, thereby giving them more flexibility.
EFSF and ESM have a €27.5bn funding programme for the year. With Monday's transactions, they now have €7.5bn left to raise in 2022.
Eyes on Finland
With EFSF now done, eyes will be on Finland, which will present a keenly watched test of how far through mid-swaps investors are willing to buy SSA paper. It has mandated Barclays, Bank of America, Danske Bank, JP Morgan and Nordea to lead manage a €3bn no-grow five-year. The sovereign's outstanding bond in the tenor was trading around 60bp through mid-swaps on Monday.
"What do they need to pay?" the EFSF lead said. "Is it a 10bp concession, a 15bp one? It's not a question of slapping on 5bp and seeing how you go from there. I think this could be a tough trade because their paper trades so tight."
KfW's five-year priced at 31bp through mid-swaps, which was its tightest spread to mid-swaps since 2017. However, an attractive pick-up of 55.4bp over Germany meant the issuer pulled in over €22.5bn of demand.
Other euro supply could include some French agencies, including Cades, which is said to be considering a five-year transaction, though widening spreads against OATs have been a hurdle for the issuer and other French agencies in recent weeks. As well as pricing, they will have to navigate around France's auction schedule as well as a syndication.
Still in the sovereign sector, Germany announced on Monday that it had mandated Bank of America to arrange a series of virtual global fixed-income investor meetings commencing August 24 for an update on its green bond programme.
The next green transaction, a new OBL maturing on October 15 2027, will be issued via syndication in the third quarter.
Away from euros, the European Investment Bank will try its hand at five-year US dollars on Tuesday. It has mandated Citigroup, JP Morgan and TD Securities for a benchmark five-year Global Sustainability Awareness Bond. The deal is being marketed at 40bp area over SOFR mid-swaps.