Belgium has delivered the latest installment of the much-anticipated wave of long-dated sovereign paper, as issuers look to secure cash while market conditions are favourable.
Investors threw more than €32bn of orders into the pot for the June 2054 deal by the first book update, allowing the leads BNP Paribas, Deutsche Bank, JP Morgan, Morgan Stanley and Nomura to take the deal in 2bp from the guidance of 10bp area above the 1.4% June 2053 OLO’s mid. Buyers got 3bp of new issue concession, a lead on the deal said.
The book closed at €34bn and Belgium took €5bn from that interest.
“We knew that there was consistent demand in the longer end in euros. You saw all the transactions going through, not least the French one last week,” the lead said.
“Timing-wise, this week was a bit constrained with the EU first and then you had US CPI, which is very looked at these days, so [it’s] market-moving,” the lead said. “That [data] was relatively benign, so we decided to jump in just after.”
It has been almost two weeks since rumours of a long Belgian issue first emerged, giving the name more than enough time to prepare the ground. It helped that the European Union opened the 30-year space this year with a successful, though cheap, €5bn no-grow tap of its 3% March 2053 line that priced at 86bp over mid-swaps in late January. France reiterated the robust long bid the week before Belgium’s bond. Buyers put in €46bn in orders for its €5bn 30-year bond.
Italy took its cue from Belgium and announced its own long-awaited 30-year deal less than two hours after it priced, mandating Deutsche Bank, JP Morgan, Nomura, Societe Generale and UniCredit for the bond.
One more to go
With Belgium now done and Italy mandated, only Germany remains of the group of sovereigns heard preparing long-end bond earlier in 2023.
“Germany should definitely seize their window here,” said a banker away from the Belgium deal. “We have had France out, now Belgium… I would definitely think they should be looking at their window maybe next week.”
To get a long-end print away, Germany will have to give buyers something to sink their teeth into on the pricing side, the banker away said. “They have to pay something in order to get a successful deal. ’Something’ is not 5bp on top of what they normally do, but maybe they have a bit more of a range [describing] where they want to [price] this transaction,” the banker away said. “It’s going to be, instead of 2.5bp [above Bunds, where Germany priced its last long bond], 3.5bp or maybe 4bp, or something like that.”
The sovereign’s last duration deal was an ill-timed €4bn August 2053 trade that came the same day as a better-performing European Union bond. “They are probably a bit more aware of their timing and their pricing style,” the banker away said.
How much demand is left for the Italy and the Germany deals is difficult to say. “Make hay while the sun shines is a good way to put it,” the Belgium lead said.
That said, investor sentiment does seem positive. “It does [seem] investors feel there is a maximum to interest rates now and so it’s good to invest now. They seem to be focused on the reducing inflation, more than what the central banks have to do to reduce inflation… I think the market still has quite a bit to run.”
The heightened bid driven by elevated absolute yields that had filled sovereign books early this year has settled down now, the lead said, but attractive swap spreads are still drawing interest from the likes of bank treasuries, he added.
Apart from the long-awaited sovereign deals, more supra supply is on its way. The day of the Belgium trade, European Stability Mechanism announced its newest RfP. And the dollar market is getting agency paper: Nederlandse Waterschapsbank began marketing a two-year dollar bond at IPTs of 22bp above SOFR mid-swaps. BMO, Daiwa, RBC and Scotiabank are running the agency’s benchmark.