In what will be a banner week for public European institutions in the bond market, the European Stability Mechanism moved early on Monday, printing a €2bn December 2024 note that sees the borrower potentially wrap up its funding for the year.
Unlike the European Commission, via the European Union, which has been called upon to help shore up the region through the Covid crisis, ESM's pandemic support line has yet to be used.
With so little left to do, leads Bank of America, NatWest Markets and UniCredit swiftly marketed the no-grow deal.
"This is basically the warm-up act for the EU," a banker on the deal said. "There was definitely a motivation to be done and dusted before they announced their trade."
By the time the mandate was announced for the EU, allocations were out for the ESM deal, with demand hitting more than €12.8bn.
"It's going to be a tough allocation," the lead said, "€12bn-plus I think is the largest ESM book this year, it's impressive."
Some bankers had questioned the timing of ESM's RFP last week, given that the EU was widely expected to emerge with its debut social trade under the SURE programme.
However, as the EU is expected to be in the market every two weeks once it has fired the starting gun on its programme, others said there was little point in waiting.
ESM did take into account the imminent arrival of the EU on the scene by starting marketing with 3bp of new issue premium at 6bp area through mid-swaps guidance.
"It's a reaction to an expectation that we're going to have a very large issuer this week, so how do you maintain focus on a trade when you've got that coming," the lead said.
Added to that was the fact that ESM was targeting the short end of the curve, where yields and swap rates are deeply negative.
At -0.582%, the transaction priced through the ECB deposit rate. But it looked attractive versus France.
"Investors are getting around 11bp of pick-up versus France, which is a big positive for central banks and real money investors," the lead said.
"There's the added incentive of the PEPP, which still has a lot of room to buy supra paper, so that's a motivation for the fast money investors to get involved as well."
Pricing was tightened by 2bp to less 8bp, leaving 1bp of concession on the table.
"That was the right approach, they're not nickel and diming for the last basis point," a banker away said. "They started at the right level, and less 8bp was the right outcome. To do that ahead of the EU was pretty impressive."
Another banker away from the deal, who put fair value at around less 9bp-10bp, said: "There's lot of liquidity in the short end, so I'm not surprised it went well.
"It is probably a little bit surprising that the book got so large in the end, but €12bn is a small number compared to all the liquidity that has been poured in by the ECB in the short end."