Six months ago the idea of one of the public sector bond market’s biggest and most sophisticated borrowers paying a high single digit new issue premium to get a benchmark done would have had funding officials crying into their cornflakes. But issuers would do well to emulate German agency KfW’s attitude to printing size in euros.
KfW's 8bp-9bp new issue premium helped the agency get to a book north of €6.4bn last week — a feat unheard of for a supranational or agency in the euro market since the European Central Bank began a programme of public sector bond buying in March.
KfW has found the right level to push investors — tired of ultra low yields and tight levels against government bonds — to get involved.
The German agency also benefited from timing: it was the first issuer to hit the belly of the euro curve since the summer, when there has been a decent amount of government bond redemptions. More than €200bn of government bonds in euros matured in the three months from the start of June, according to Dealogic.
Any funding official looking to print this week came up against a short week after the UK holiday on Monday and ahead of the European Central Bank’s monetary policy meeting on Thursday.
European Investment Bank priced a five year deal but, paying a 5bp-6bp new issue premium, didn't max out in size in the way that KfW managed to. The EIB has about €10bn left to raise this year so can perhaps afford to take its time, but a funding officials looking to bring deals in size will also have to contend with a big borrower with an enlarged requirement.
Next week, the European Stability Mechanism, which has an extra €13bn to raise this year as part of an €86bn bail-out package for Greece, is set to bring a deal. Many public sector bankers believe it will have to go for a large print in the belly of the curve to take a big chunk out of its funding programme for the rest of the year. ESM has €18bn to raise and seven deal windows to do it in.
In the past ESM has shown itself willing to pay up to ensure a successful deal. Borrowers wanting to bring big deals this month should take heed, and follow KfW's lead in coughing up.