Land Hessen brought its second biggest transaction on Tuesday, a €2bn January 2033 that once again showed the depth of demand in that part of the curve for public sector issuers with books closing in excess of €4.6bn.
The deal size is only exceeded by a €2.25bn 10-year priced by the German region during the peak of the Covid-19 pandemic in May 2020. The 10-year part of the curve has been something of a sweet spot for SSA borrowers looking to raise funding. Only last week, Spain secured its second highest order book ever for a €13bn long 10-year, which was also the borrower's second biggest ever deal.
"A big success," a banker away from the Hessen's trade said, adding that the outcome could encourage further issuers to go long. "We’ve got a window for 10-years and who knows when it will close again. I guess now everybody would come out and want to do longer-dated paper," he said.
Hessen last tapped the 10-year spot in October 2021, instead opting for two five years in 2022. The choice of tenor was mainly driven by the issuer's redemption profile and market feedback.
Barclays, DekaBank, DZ Bank, JP Morgan, LBBW and UniCredit began marketing the short 10-year benchmark trade at mid-swaps plus 1bp area, 2bp–3bp back of fair value based on recent trades from Lower Saxony and North Rhine-Westphalia. Lower Saxony's €750m 3% January 2033 and NRW's €2.5bn 2.75% January 2032 were both quoted around minus 1bp, according to Tradeweb.
The book gained additional momentum once the spread was set at 1bp through. “It’s a big blowout, the order book going much better than expected, the original target from the issuer was €1bn–€1.5bn, but now, with more than €4.4bn orders, they’ve asked for internal approval to upsize to €2bn, which has been granted," a lead said. He added that the fact Hessen stood alone in the euro SSA market, ahead of central bank meetings, had really paid off.
A second lead said the trade showed that despite the inversion of credit the curve, 10-years were doable in the SSA sector even with a slight negative spread.
"There’s a lot of issuers looking at next week across the curve, including sovereigns, supras, agencies. It could be a very busy week if central bank meetings go as expected and the market is still in good shape," the first lead said.
Land Berlin's anticipated €750m sustainability bond debut is now waiting in the wings.
Though the tenor for this inaugural offering has yet to be announced, market participants have identified a 10-year as the clearest option, a view that may be reinforced by Hessen's success.
"I can imagine that every other German state is looking at how they would get funding compared to minus 1bp for 10 years," the second lead said.