A more stable market backdrop enticed three public sector issuers to the euro market on Monday, which made for an unusually busy day for the asset class.
Intraday Monday execution is not totally out of the ordinary for SSA issuers but they typically tend to opt for a wait-and-see approach to gauge the market before announcing mandates. However, a more volatile backdrop has meant that some issuers are changing tack and grasping opportunities when they emerge.
"We'd been monitoring the market for a while," a lead on Cades said. "We'd been waiting for a stable window but last week was very volatile from one day to the next. Today was perfect."
The French agency, along with the European Investment Bank, opted to lessen execution risk by bringing taps rather than new lines, while the State of Hessen chose a club-style deal, appointing LBBW for a €300m seven-year that priced at 14bp through mid-swaps.
"The deals [Cades, EIB] have gone well generally, which is really encouraging, given what happened last week," a DCM banker said.
Sagess and CPDQ pulled transactions last week after failing to drum up enough demand in euros and dollars, while AfDB also struggled in dollars.
"Cades is reopening the euro market for French agencies, the DCM banker said. "EIB looked fine; it was not a blowout but it was fine. Doing €1bn 15-year isn't obvious but they've managed a good size. Those two names remain among the more liquid ones, which remains an important aspect for investors."
Cades launched a €1.5bn tap of the November 2029 social bond at 31bp over OATs, the tight end of the 32bp area guidance via BNP Paribas, Credit Agricole and Deutsche Bank, which, similar to recent trades, offered an attractive new issue premium of 5bp, according some bankers, although another lead on Cades put it closer to 2bp.
"It depends on how you assess fair value," the second lead said. "If you look at secondaries, it's 5bp, but that's misleading, as you would be using bonds that have been squeezed by the various ECB purchase programmes. OATs have rallied aggressively and French agencies look expensive versus other mainstream SSA issuers. However, with this deal, we now have a clearing level for where French agencies should price."
Books were over €2.8bn.
"I think they understood that they needed to pay more to have a good transaction," the DCM banker said. "Some issuers are not really listening to that message and think they can get away with a smaller premium on smaller deals, but that's not really the case. Conditions are very different from what they used to be and investors' appetite for paper is not as deep."
The concession was similar to the one paid by KfW last week for a €4bn seven-year green trade. Cades' tap brings the size to €3.5bn, adding liquidity to the bond.
"For issuers that need to fund, that have big programmes, they need to be pragmatic," the first banker said.
Still, in the case of EIB, the supranational paid a skinnier premium of around 2bp versus the bid side. Leads Citigroup, JP Morgan and Morgan Stanley pulled together over €1.6bn of demand for the €1bn tap of the November 2037 Climate Awareness Bond. The tap priced at 3bp over swaps, from guidance of 4bp area.
Spurred into action
The deals have galvanised other borrowers to announce official mandates, while other projects are in the works.
Triple A rated Rentenbank has mandated BNP Paribas, Bank of America, DekaBank and Societe Generale for a 10-year euro green bond which will look to emulate the success of KfW.
It is the agency's first green offering of 2022. "It should go well," the first banker said. "As long as they pay the curve between seven and 10s, the deal should be fine."
Also in ESG, Region Nouvelle-Aquitaine has mandated Credit Agricole and La Banque Postale for a possible long-dated €100m will-not-grow sustainable bond.
Other issuers are still biding their time, however. Sagess is still monitoring the market after pulling its trade last week.
"They'll continue to market the trade," the DCM banker said. "The timing wasn't obvious when they tried – conditions were very volatile and they're a less liquid name, so investors need a bit more time to set lines up."