The World Bank has revived the supply of 10-year US dollar paper in the SSA market as part of a new dual-tranche benchmark, after a near two-month hiatus of issuance in the esoteric tenor.
Despite the fact that the 10-year part of the curve is not always an easy tenor to tackle – there has been just US$4.5bn issued this year from wider-trading names Cades and Ontario – the supranational was able to draw orders of over US$3.5bn to its US$3bn March 2032.
Bank of America, Deutsche Bank, Goldman Sachs and JP Morgan set the spread at 40bp over SOFR mid-swaps, slimming it down from IPTs of 41bp area.
“One reason I can think it worked well is partly due to (Federal Reserve chair) Powell yesterday, who was very hawkish. If you look at where rates are, where do you think the terminal rates are going to be?” said one banker. “If you look at where we are now, we are probably not far away from what the market thinks is the terminal rate, so, as such, exposure at that type of rate is probably more interesting again.”
The spread to Treasuries at this point on the curve also likely helped to drive demand for the 10-year.
“If you look at all the seven-years that have come, they had Treasury spreads of 12bp–13bp; this will have a US Treasury spread in the mid-20s,” said the banker. “So, if you get 10bp over Treasuries when yields are more than 2%, then maybe it’s not that interesting, but if you get something like 25bp, then you’re talking.”
At IPTs, the spread to Treasuries equated to 25.5bp.
The World Bank showed a clear preference for extending its maturity profile, having also received orders of over €5.9bn for a March 2024 but sizing the tranche at just US$1bn. The spread to SOFR mid-swaps was set at 12bp.
Other supranationals might consider attempting a 10-year now that the World Bank has demonstrated it is a viable option, but it remains esoteric in the dollar market and a lot hinges on the market backdrop.
“It is still a market of windows, and what works for one issuer one day might not work for another issuer on another day,” said a second banker.
This was a sentiment echoed by the first source.
“If the market is selling off, you have higher rates rather than lower rates,” he said. “If we had it the other way around, it would have been more difficult to get accounts to buy in.”
There was also short-end issuance from Kommunalbanken on Tuesday, which announced final terms on a US$1.25bn September 2024 of SOFR mid-swaps plus 26bp. The trade amassed orders of over US$1.55bn and was being sold through Credit Agricole, Morgan Stanley, Nomura and Scotiabank.