The US dollar SSA market is back after the European Investment Bank won a near-record book for its US$4bn five-year deal. The outcome sets a positive tone for other public-sector borrowers looking at the market for funding, as well as adding a data point to help pricing.
The US$12bn-plus of overnight interest that EIB gathered indicated that the deal could beat the issuer's previous record for a US dollar order book: the US$19.6bn it got for a US$5bn 3.75% 10-year 'climate awareness bond' in February. Tuesday's deal fell short of that bar, with books closing at US$18.6bn, but that still constitutes EIB's second-biggest US dollar book, according to IFR data.
Some of that demand is EIB specific, a banker away from Tuesday's dollar traffic said, but he noted that higher absolute yields are drawing a bid generally to the capital markets. "There is a degree of EIB specificity," he said, "but the... back-up in rates probably helps as well. There is a view that despite the volatility we are near peak rates, give or take a hike here or there. From an investor's perspective, you get some comfort coming in and [buying] five-years: with the five-year US Treasury at almost 4.5% it's a bit of a no-brainer." The five-year Treasury was bid at a yield of about 4.46% on Tuesday, according to Refinitiv.
EIB's leads - BMO Capital Markets, Citigroup and RBC Capital Markets - tightened pricing to 33bp over SOFR mid-swaps, 2bp tighter than the 35bp area starting point. That left 2bp of new issue concession, said a lead on a Development Bank of Japan deal out the same day. The banker away from Tuesday's dollar supply put the concession at 1bp.
DBJ netted US$3.3bn-plus of demand for its US$600m three-year sustainability bond, a more modest book, but still a good showing from a more niche name. Barclays, Citi, Goldman Sachs and Mizuho set the spread at 62bp over SOFR mid-swaps, a massive 5bp in from the IPTs of 67bp area.
That tightening left the bond flat to DBJ's curve, a lead on the deal said. He said the banks primarily used DBJ's secondary levels to price the deal.
EIB's success at the five-year mark has paved the way for two more SSA deals at that tenor. Asian Development Bank is marketing a deal at SOFR mid-swaps plus 37bp area via Barclays, Bank of America, Citi and JP Morgan. Kommunalbanken has mandated BMO, Nomura, Scotiabank and TD Securities to market September 2028s at IPTs of 46bp area over SOFR mid-swaps.