The European Union produced a textbook execution for its €7bn 15-year deal on Tuesday despite the market showing signs of weakness the week before, netting a solid bid despite a debate around the concession it offered.
For a name as liquid as the EU, assessments of fair value varied significantly. While one SSA head away from the deal said the print offered 5bp at landing – much more than the EU’s typical 2bp – other bankers away put it closer to 3bp.
The difference stemmed from whether market participants referred to SURE paper to assess the fair value or interpolated between NGEU bonds, those second and third bankers said.
“The problem with this [SURE bond] method is that the SURE bonds are no longer tappable [the SURE programme having concluded at the end of 2022],” said one of them. “I wouldn’t consider them as liquid, fair market [indicators].” The NGEU bonds are “still tappable and are more traded”, he added.
That second banker interpolated between the EU’s July 2034 and July 2041 NGEU prints to assess fair value at 29bp over mid-swaps – 3bp below where the EU landed the new 15-year no-grow deal.
Whatever the true fair value, the pricing did its job. “It was a very textbook, very fast [deal],” the first banker said, “especially since there was some price discovery.”
In the usual fashion, the supranational tightened the trade by 2bp, moving from the 34bp area over mid-swaps guidance to a final 32bp. Final books reached €63.5bn-plus.
Barclays, Citigroup, Credit Agricole, Natixis and Santander led the print.
The EU deal follows a week of hit-or-miss SSA prints as buyer showed pickiness. Even market favourite KfW fell foul of the picky bid when it got only €5.1bn in interest – much less than the German name is accustomed to – for its €3bn long 10-year.
League of its own
The market will be glad to have the EU deal as a sign of strength, but its exceptional status may mean less-followed SSAs can draw less confidence from the issuer’s print.
“It’s quite a positive sign,” for the market, the first banker said. A fourth banker, who was also away from the print, said that the EU’s performance is less relevant for smaller SSAs, the name being too much in a league of its own.
Even if that is the case, Berlin decided the time was right to mandate a five-year print via BayernLB, Citigroup, DekaBank, Deutsche Bank and LBBW. Another German agency is considering a tap, the second banker said.
French agency Unedic also followed the EU into the market. It mandated BNP Paribas, Citigroup, JP Morgan, Natixis and NatWest to run a €1bn no-grow 10-year social bond.
And away from euros, Swedish Export Credit appointed Bank of America, Deutsche Bank, Nomura and TD Securities for a long two-year dollar deal. It is marketing the bond at IPTs of 32bp area over SOFR mid-swaps.
Some bankers are expecting more mixed results in the SSA market now that the early-year honeymoon period, when issuers are keen to make a dent in their funding programmes, is over.
“Some issuers are of the view that with their very progressed funding programmes they can now be a bit more aggressive [on pricing],” the first banker said, “especially when it comes to taps … We will see the benchmark kind of trades with a fair concession and room to perform, [which could] surprise to the upside. And then we will also see some more aggressive taps.”