Record breaker
Spain not only managed to successfully navigate a thorny euro market with its return to the inflation-linked market in the second half of 2023, but it secured a record book while doing so.
The success of the €3bn no-grow 15-year linker – which won €29bn of orders – followed two months of hot-then-cold conditions in the euro market, which had produced lacklustre performances from SSA issuers both big and small in the primary market.
The deal’s book was bigger than that of any other SSA linker, according to IFR data. The trade was helped in part by the demand that had built for Spanish linker issuance since its last deal in the format in 2018.
The sovereign got the timing of its return spot on. Spain had been monitoring the market for a while, trying to find the best window. The deal was eventually timed to ride the wave of momentum in the inflation-linked market, following a rally in oil prices spurred by the war between Israel and Hamas.
Post-deal statistics backed up the book’s strength, with close to 80% of the bonds going to international accounts. And central banks and official institutions – a favoured investor base thanks to their typically buy-and-hold positions – took more than 45% of the paper.
Spain did not have to pay above and beyond the usual concession to ensure the deal’s smooth passage.
Lead managers, Citigroup, Deutsche Bank, HSBC, JP Morgan, Morgan Stanley and Societe Generale, set the final spread at 41bp over Spain's November 2033 inflation-linker, 2bp in from guidance. Assessments of new issue concessions ranged from 3bp to 4bp, a range that was in line with the premiums Spain offered in the first half of 2023, a notable fact given concessions climbed for euro SSA deals in the second half of the year.
The success of the deal belied the complexities involved with linker issuance in 2023. With inflation high on the agenda for the financial markets and policymakers alike, Spain’s linker priced into a charged backdrop for the product. Germany even went so far as to say it will withdraw linker issuance from 2024.
But, like other European sovereigns active in the linker market, Spain focuses on the projected long-term benefits, said the Spanish Tesoro's head of funding and debt management, Mercedes Abascal Rojo, at AFME’s annual European Government Bond Conference in November.
"Apart from the benefits in terms of the stabilisation of the interest pattern in real terms, it's also very important to access other market participants in order to diversify your investor base," Rojo said.
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