Fresh off a successful long-end dollar trade the day before, the European Investment Bank re-emphasised the sunny conditions in the euro market with a €30bn-plus book, as SSA prints in both the single currency and dollars across the curve find traction.
The supranational raised €5bn from a long five-year climate awareness bond led by Commerzbank, Morgan Stanley, NatWest Markets and UniCredit. The book closed at more than €30.5bn. The paper tightened 2bp from the 7bp area below mid-swaps guidance, offering 2bp of new issue concession, a lead on the deal said. The previous day, it lured books in excess of US$19.6bn for its US$5bn 10-year CAB – the highest-ever volume for an EIB Global benchmark as well as for any dollar supra transaction.
“There were some concerns at the open this morning given the ECB [news that it was looking to inject more cash into the market via reduced remunerations],” the lead said. “But €30.5bn is up there in terms of the overall size of order books we’ve seen [recently from bigger SSAs]. It’s in line with KfW yesterday."
The central bank said on Tuesday that it would cut the maximum rate it pays on deposits held by governments to give them an incentive to redeploy that cash into the financial system, Reuters reported.
“Obviously there was a big, immediate reaction yesterday in short-end swap spreads," the lead said. "But it’s settled down a bit here.”
Those headlines did little to knock confidence in the euro market.
“I’m very bullish with regards to the market, despite the ups and downs in spreads affected, for example, by yesterday’s ECB announcement,” said a banker away from Wednesday’s primary flows. “The remuneration of the money that official institutions have at the ECB is not ESTER anymore, but ESTER minus 20bp, which affected swaps spreads and in turn affected the spreads of SSAs also.”
But he said the clarity around the terminal rate was helpful.
"The path is clear and going forward we will see more of a stable environment, at least for the short term, over the next month or at least until the next ECB meeting," the banker away said. "It’s a very good environment to continue from where we were, as from the first day we had quite a strong primary market and it’s still going well.”
Returning clout for ESG?
The ESG deals on Wednesday bore the marks of bubbly conditions. One of them delivered record interest: the Basque Government had books of over €5bn for a €700m long 10-year sustainable issue, a new high for the name. BBVA, CaixaBank, Citigroup, HSBC, Nomura, Norbolsa and Santander led the trade, tightening it 6bp from the 27bp area above SPGBs guidance. That guidance equated to 75bp above mid-swaps.
The regional issuer surpassed its previous order book record by some margin. It had stood at €3.3bn, the interest the Basque Government built via a €500m 0.85% 10-year sustainability bond it issued in March 2020.
A strong showing from ESG bonds in the past couple of weeks has suggested a possible return of greeniums, two bankers have told IFR, on top of the help the status provides to leads gathering interest for the paper.
“Yesterday, KfW’s 10-year was clearly showing that there is a huge demand for green investments,” said a banker away from the week’s euro SSA ESG issuance. "Also Berlin on Monday, and today the same with EIB."
A lead on the KfW deal said the day it priced: “We need to see a bit more evidence, maybe a couple more deals to draw a proper conclusion, but both European Investment Bank [out in the dollar market with a ‘climate awareness bond’ the day before its new euro deal] and KfW have absolutely flown and it’s difficult to ignore the green label there.”
The EIB lead was more sceptical about the help ESG labels are offering SSA issuers: “I think it helps on the margin.”
Non-ESG deals from smaller SSAs also did well on the day. Saxony-Anhalt got a €1.5bn book for its €500m no-grow 10-year via Barclays, DekaBank, Deutsche Bank and NordLB, tightening the paper 1bp to mid-swaps minus 2bp. Buyers put €1.8bn into the book for Japan Bank for International Cooperation’s €1bn five-year deal. Daiwa, Citigroup, Goldman Sachs and JP Morgan ran that trade and brought it in 2bp from the 22bp area above mid-swaps guidance.
“The next big hurdle is going to be the QT story, when that starts in March,” the EIB lead said. “But so far, so good.”