Room for two: EU and KfW clear trades across curve

5 min read
Luke Acton

Both the European Union and KfW won good traction with buyers despite appearing on the same day in euros. The EU’s mid-curve to long-end dual-tranche offering and KfW’s short-end bond stayed out of each other’s way, dispelling the notion that SSAs have to completely steer clear of EU syndications

Buyers showed their increasing appetite for duration in the EU deal, cementing the impression that issuers can access longer funding if they want to as buyers adjust their strategies to a slower pace of rate hikes and anticipate a recession.

The EU’s €4bn tap of its November 2042 print won a €44.7bn bid, while the €3bn December 2029 tap gathered a €31.2bn book.

Danske Bank, Deutsche Bank, Goldman Sachs, JP Morgan and Societe Generale set the spread on the longer deal at 52bp over mid-swaps, 2bp in from the plus 54bp guidance. They set the shorter line at 3bp through, 2bp tighter than the less 1bp guidance.

The bid both lines enjoyed was despite the minimal concession they left buyers with, a banker away from the deals told IFR. While the longer bond left a 1bp premium, the banker said, he saw no concession on the December 2029 deal. A second banker saw marginally more premium on offer. He said the 20-year paper offered a 2bp new issue concession, with the 2029 paper offering 1bp.

That the EU is compensating buyers for a deeply inverted euro swap curve ensures a good bid for products like the 20-year, the first banker said, but in turn may dissuade other SSAs from going as long.

“Other issuers who don’t have that much need for duration tend to stay away from [those longer tenors]; they don’t want to pay up,” the first banker said. “Their bonds are quoted at way tighter levels, but if you really want to push out €2bn to €3bn [for a major SSA], everybody would look at how the EU handles it because they are the liquid benchmark. For a lot of issuers, apart from the EU, the nominal spreads … are just too high.”

The fact that the EU regularly supplies long paper also ensures that investors’ expectations do not face any pressure to shift in the form of a lack of supply, the first banker said.

The second banker agreed that other SSAs are unlikely to replicate the EU’s long-end performance on Tuesday. He added that when it comes to other SSAs, the bid for duration is more likely to manifest itself in 10 to 15-year paper rather than anything longer.

That 15-year paper materialised quickly. The day of the EU deal, France announced its newest inflation linker, a March 2039 deal. It tapped Barclays, BNP Paribas, Credit Agricole, Deutsche Bank and JP Morgan for the trade.

That announcement followed Ile-de-France Mobilites’ mandate for a 15-year green bond via BNP Paribas, Credit Agricole, Natixis, Nomura and Societe Generale.

Spain opted for a shorter offering. It mandated a long 10-year via Barclays, BBVA, Credit Agricole, Deutsche Bank, Goldman Sachs and Santander on the day of the EU deal.

KfW goes short

The EU usually gets the market to itself for its well-telegraphed syndications, bar the odd Germany deal that goes head-to-head with the supranational. KfW broke with that convention, however, mandating a May 2026 transaction via Bank of America, Commerzbank, Credit Agricole and TD Securities to be executed the same day as the EU's offering.

The issuer did not face any penalties for that decision – it got a €14.5bn bid for the €5bn print, pre-rec – though it was seen offering an attractive level to clear the paper. The first banker away said the final 28bp through mid-swaps spread (1bp in from the guidance of less 27bp area) left 5bp of new issue premium, though the second banker saw it at 3bp.

Nevertheless, KfW’s success goes at least some way to confirm the growing notion that issuers need not be wary of the EU’s syndications, as long as they steer clear of the same tenors.

“[The concession] is rather on the high side for KfW,” the first banker said. “Then again, it’s the most expensive credit out there, on a day when you’re going head-to-head with another issuer that takes a lot of liquidity out of the market. That’s probably the thing you have to do.”

More German paper is on the way.

The same day as KfW’s print, the state of Baden-Wuerttemberg announced investor calls for a green bond via Danske Bank, DekaBank, Deutsche Bank, ING and LBBW and Berlin mandated BayernLB, Citigroup, DekaBank, Deutsche Bank and LBBW to run a tap of its 3% May 2028 deal.

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