The European Financial Stability Facility has become only the third supranational or agency to print a €3bn deal size in the single currency since the onset of quantitative easing, which has made the market challenging for top-rated issuers.
The Aa1/AA/AA rated supranational priced a €3bn April 2025 note at 22bp through mid-swaps, compared to IPTs and guidance of less 21bp area.
“It looks like they’ve cleaned out the market, but fair play to them for getting that size,” said a rival banker. The order book was in excess of €3bn at the last update.
“They did offer a good premium, and that is what is required in this market,” he added.
At the final spread level, the issuer appears to be offering a 5bp-7bp new issue concession, a level designed to avoid the fate of previous issuers in that tenor.
A second rival banker saw fair value at 29bp through, while a third saw the concession at 5bp-6bp based on the outstanding curve, a view borne out by Tradeweb prices.
EFSF has a 1.75% June 2024 note that was trading at swaps less 29bp on Monday afternoon around the time the new bond was announced. A 2.125% February 2024 was at less 29.6bp and a 1.875% May 2023 at less 30.5bp, according to Tradeweb.
This would suggest fair value of around 27.5bp through swaps, suggesting a new issue premium of about 5.5bp.
A lead banker agreed with this assessment, saying that such a premium should allow the deal to go through comfortably.
“The EIB trade from last month showed us that we can’t take chances with a new issue premium, so EFSF has done the right thing here. Indications of interest are looking good so far,” he said.
At swaps less 22bp, EFSF paid a premium of 15.6bp versus Germany, much more than the 5.8bp offered by EIB recently. The tight print against the benchmark was also why that transaction struggled to gain traction.
Pricing is expected later today via BNP Paribas, Deutsche Bank and Natixis.
Investors keep focus on spread for NWB euro trade
Dutch public sector lender Nederlandse Waterschapsbank followed in the footsteps of KfW and FMS and priced a 15-year €o bond today – the issuer’s first in the currency in almost a year, writes IFR’s Anna Brunetti.
The agency priced a €750m April 2030 deal at 5bp through mid swaps, after DZ Bank, HSBC and Nord/LB set initial price talk at 3bp area yesterday afternoon.
The lead managers opened books at the same less 3bp area this morning, before tightening guidance to less 4/5bp as orders reached €600m.
Final orders of about €1.1bn prompted the lead managers to upsize the deal from the initially indicated €500m no-grow size.
A banker away for the deal said stepping up the size of a no-grow deal doesn’t usually look good, but can serve to ease complaints of a lack of allocation.
In the longer end of the duration spectrum, the agency has a March 2027 bond which was bid at about less 11bp pre-announcement, according to Tradeweb, and a September 2031 bond at about less 6.4bp.
That suggests fair value on the new trade at around less 7bp, meaning around 2bp of new issue premium at the pricing level.
The banker said the final spread looked very generous, especially on a relatively small size.
“It shows you what you need to offer in this current market to get a €o deal away,” he said.
This echoes comments on yesterday’s trade from fellow agency FMS, which at less 16bp had to offer 7bp more than KfW’s deal from last week.
This was even more surprising given that both FMS and NWB were added to the list of €o-area agencies whose bonds can be purchased by the ECB last week – a move that has so far guaranteed a good dose of tightening to all included names.
KfW and ADB attack opposite ends of the USD curve
Asian Development Bank hit the short end of the US dollar market, while KfW returned to the currency to go long, and both issuers looked set to complete their respective deals.
KfW, having priced a comfortable US$5bn five-year deal two weeks ago, came back to get a longer deal away before its blackout period begins.
The Germany-guaranteed agency set a final spread of 6bp over mid-swaps, in line with Monday’s IPTs of 6bp area.
The 10-year tenor is a tricky one at the moment because low US Treasury yields make deals less attractive for investors.
The 10-year Treasury was bid at 1.87% at midday on Tuesday.
KfW attempted to mitigate this effect by offering a 2bp pick-up to its curve, according to a lead, who saw an outstanding November 2024 note at 4bp over mid-swaps, though Tradeweb had the bond at 4.8bp over around the time of the announcement.
“I think that leaves a bit on the table to give the issuer the option of size,” he said. The order book at the last update was over US$4.1bn.
A rival banker also saw the November 2024 at 4bp over mid-swaps.
“Also, most of the other peers, the likes of EIB and World Bank, are trading in the low single digits over mid-swaps. So they are not offering a huge amount, but I believe enough to get US$3bn-US$4bn away,” he said.
Pricing is expected later today via Deutsche Bank, Nomura and RBS.
Asian Development Bank, meanwhile, fixed the spread on a July 2017 US dollar trade at 9bp through mid-swaps, in line with IPTs and guidance of less 9bp area.
The order book was over US$1.8bn at the last update.
The issuer does not appear to be offering much of a spread – a rival banker saw the new issue concession at 1bp – but the front end of the US dollar curve has been somewhat undersupplied so far this year.
“Even though it’s a sub-Libor deal, I think there will be enough central bank demand to push this one through,” the rival banker said.
Pricing is expected later today via Citigroup, HSBC and JP Morgan.
Meanwhile, the European Investment Bank priced a £500m tap of its 1.5% February 2019 notes, taking the size up to £2.5bn.
Final pricing was at 19bp over the 4.5% March 2019 Gilt, in line with IPTs and guidance of 19bp area.
Barclays, Credit Suisse, Deutsche Bank, HSBC, RBC Capital Markets and TD Securities were the lead managers.
