The European Union and Germany are set to provide a double dose of long-end supply on Tuesday, though bankers downplayed concerns of any clashing interest.
The EU has mandated Barclays, Bank of America, Deutsche Bank, JP Morgan, and NatWest Markets to lead a tap of its 1.625% December 2029s, issued under its NGEU programme, and a new 20-year benchmark with proceeds going to both its MFA and NGEU programmes.
Shortly after that mandate broke, Germany announced a 30-year new issue via Barclays, BNP Paribas, Deutsche Bank, Goldman Sachs and JP Morgan.
“Both were aware of each other, and both came to the decision to go ahead, knowing that the other issuer will also come. It’s going to be fine,” said a DCM banker.
That was the conclusion made by other bankers. “I guess the joint lead managers and the issuers are convinced that they can come on the same day, otherwise it makes no sense to put them on the screens together,” said a syndicate head. But he did say that, “these issuers are very self-confident. They have their calendars… It shows weakness if they skip these dates.”
Another SSA head said the two long-end offerings were different enough to avoid any clash.
The scale of funding the EU needs suggests it will go for size. It has over €27.35bn left to fund for its NGEU and MFA programmes, with up to €6.6bn needed for the SURE scheme. In short to mid-curve prints since May, the EU has opted for clips ranging from €5bn to €7bn, IFR data shows.
As for the 20-year note, €2bn of the proceeds will be used for the MFA, with additional proceeds going to the NGEU. Recent outings by other issuers have shown there is a decent bid. Flemish Community received more interest for its €1.25bn 20-year sustainability bond than the €750m 10-year note it marketed concurrently last Wednesday. Books for the 20-year tranche reached €1.75bn, compared with €1.2bn-plus for the 10-year note.
Irrespective of how much the EU raises, it has two more syndications scheduled for November and December, along with numerous auctions, to help it meet its overall funding target.
The EU is going to have to steepen its yield curve beyond what secondary prices are marking to smooth its passage in the long end, the first SSA syndicate head said.
In its September dual-tranche offering comprising five and 30-year tranches, the EU paid a 2bp concession for the five-year and 4.5bp one for the 30-year.
What Germany is going to have to pay is less clear, given its status as the premier safe name in the euro market.
Pricing against itself, instead of mid-swaps, also makes it distinct from the EU. But it is well-known for pricing tight and the likelihood is that the sovereign will not deviate from that strategy.
Following big-name supply
A flurry of mandates following the EU and Germany deals is likely as smaller issuers vie to execute in a limited window.
“Everyone’s waiting for this trade to set the tone for the primary market,” another DCM said, referring to the EU’s outing.
“They will be looking at everything,” he said. “What the maturities they’re targeting, how it goes, what the book size is, what the new issue premium is, how it trades in the secondary market, every aspect of the transaction will be heavily [scrutinized].”
That focus can only be heightened given the choppy conditions. “It’s not appearing great. It’s still very, very volatile,” the second DCM banker said.
Bankers said that while the backdrop was not the easiest, there was good demand for safe assets. A €1bn long six-year covered for Caisse Francaise de Financement Local’s saw orders pass €1.3bn on Monday for example.
There is rare supply in the pipeline. Denmark is sounding a return to the euro market for its first benchmark in the currency in more than a decade. IDB Invest is also marketing a euro debut, having mandated investor calls for a sustainability issue.