SFIL netted last Wednesday’s biggest book in the euro SSA market despite competing supply from more frequent, more liquid names. Price and a recent rating bump increased the issuer’s appeal, as other SSAs contended with the price disruption wrought by heavy euro supply.
The French agency won a more than €4.6bn bid for its €1.5bn five-year via BNP Paribas, JP Morgan, La Banque Postale, Natixis and NatWest Markets. The interest allowed it to tighten the deal by a massive 4bp from initial guidance of 49bp area above OATs.
SFIL offered a 5bp new issue concession at guidance, a lead on the deal said, leaving a 1bp premium at pricing.
“[The success of] SFIL is a combination of demand post the success of Cades and how that one performed. It’s also worth flagging that SFIL has had a rating upgrade (Moody’s upgraded SFIL to Aa2 from Aa3 in December), so it’s getting slightly more favourable treasury treatment in terms of collateral haircut, so that’s helped.”
Caisse d’Amortissement de la Dette Sociale (Cades) priced a €5bn social bond issue at 42bp over OATs – 3bp in from guidance – off a €31bn book on Tuesday.
“All the trades are going very well here [in euros],” the lead said. “We’re seeing a lot of demand from the treasury space on all of them.”
Bank treasuries have been more active across the board, the lead said.
Demand is not up everywhere, however, he said, noting a lack of interest from Asian central bank buyers.
“The Asian central bank bid has not been as strong as I would have thought for these kinds of maturities, but I guess on a swap basis it’s not as attractive as other options. Maybe they’re a bit more defensive on the euro outlook as well.”
Fellow French issuer Agence France Locale saw more modest demand last Wednesday. It put out guidance at 57bp area over OATs, tightened 3bp from there and attracted €1.9bn of demand for the long seven-year via Citigroup, Commerzbank, JP Morgan and Societe Generale, printing €750m from that.
The tables have turned for French sub-sovereigns, which had suffered from tricky pricing dynamics that hobbled buyer participation last year.
“At current valuations, the bonds [from French sub-sovereigns] are offering good value versus France, of course, but also versus swaps and other SSAs,” said a senior banker away from the euro SSA flows last Wednesday. “It’s no wonder clients are keen to buy French agencies in big size.”
Supply puts yields under pressure
SFIL was the dark horse of the euro market last Wednesday, but the more mainstream names with smaller books still managed to achieve respectable trades, though not the blowouts seen in previous days.
Pricing has become less straightforward, however. The deals came at a “cheaper level than what they would have been a few days ago”, said the senior banker away from the sector, “as we have seen some pressure, especially in the 10-year part of the curve following the large EFSF trade.”
EFSF grabbed a "chunky" €6bn of funding via a dual-tranche deal last Monday, printing €2bn of August 2026s and a €4bn 10-year tranche.
“Maybe there were too many bonds in the street by EFSF,” the senior banker away from the deals said “as we have seen some underperformance on the break from this transaction. It has put a little bit of pressure [on yields] after what has been a very strong start otherwise.
“It’s still important that clients are cautious with their approach to the market. The market is solid; there is a deep pocket of demand … however, not everything is allowed in terms of pricing or in terms of size,” the banker said.
The World Bank’s €3bn 10-year sustainable development bond issue was “one of the most obvious victims of the EFSF trade’s implied widening”, he said. He pointed out that guidance of 12bp area over mid-swaps came 4bp back from where Council of Europe’s 10-year started the day before, though he noted that “at the end of the day, they got a €4bn-plus book, which is a good outcome”.
The World Bank’s bid ended up at €4.3bn after marketing by BNP Paribas, Deutsche Bank, Natixis and Nomura. The deal tightened 1bp.
Meanwhile, Export Development Canada and Municipality Finance went head-to-head at the five-year point. Both got their deals away without fuss, however.
EDC received a €2.6bn bid via BNP Paribas, Deutsche Bank, HSBC, NatWest Markets and TD Securities. The SFIL lead said EDC paid a 4bp concession after the leads brought the deal in 1bp to land at flat to mid-swaps.
Municipality Finance attracted a €3.6bn bite from investors for its five-year deal. Leads Bank of America, JP Morgan, Morgan Stanley and Nordea took the deal in 2bp, setting the spread at flat to mid-swaps. The SFIL lead put MuniFin’s new issue concession at 5bp at landing.
Slower bid for German sub-sovs
It was not green flags for all small SSAs in euros. The German state of Saarland’s seven-year suffered a shaky start, though in the end it did not share a similar fate as its peer Lower Saxony, which lost half its book after tightening.
Saarland was unable to get books to clear the deal's €500m no-grow size by the first update without the assistance of the lead managers, who put in €25m of orders. That lacklustre demand left the spread flat to the 3bp below mid-swaps guidance, a move that won it more of a bid and took the final book to more than €740m with the same amount of JLM participation. DekaBank, DZ Bank, HSBC, LBBW and NordLB led the deal.
Saarland’s peer Lower Saxony lost half its book a week before, when it tightened its €750m 10-year note issue by 2bp inside the flat to mid-swaps guidance.