The catalyst for the transaction was the strong US non-farm payroll number released last Friday, which reinforced expectations of an interest rate rise at the FOMC meeting later this month.
For the last few months each successive payroll announcement has sown more disquiet among investors about a looming rate rise. This time, the market had already accepted the prospect of a rate rise and read the data as a welcome confirmation that the economy is behaving as expected.
Including an upward revision of March and April?s figures, 322,000 jobs were created in May, making the last three months the strongest period since May 2000.
The market?s gathering certainty that a rate rise will come in June gave many investors the confidence they needed to return to the market.
But the change in interest rate outlook and accompanying bear flattening of the curve have pushed many investors to retreat to the short end, or to combine this with long dated buying in a barbell strategy.
The rise in yields at the short end over recent months enabled the EIB to offer investors a 3% coupon.
Citigroup, Deutsche Bank and JP Morgan won the mandate for the deal on Monday and were able to build an oversubscribed book by the time of pricing on Wednesday. The EIB sold 57% of its bonds in Asia, 27% to US investors and the remaining 16% to Europe and the Middle East.
Bankers praised the supranational lavishly for its flexibility in responding quickly to investors? needs, as it did in April with its $1.5bn 10 year global.
?This is a good illustration of the EIB?s ability to take soundings from the market and use that intelligence to accurately identify where investors want to put money to work across the yield curve,? said Scott Lampard, head of frequent borrowers at JP Morgan in London.
Sandeep Dhawan, senior capital markets officer at the EIB in Luxembourg, told EuroWeek that such flexibility was particularly appropriate in the current market.
?Flexibility is a key part of our funding strategy and the ability to be nimble has been particularly important this year,? he said. ?The market has been difficult to call, particularly in dollars.?
However, recent signs suggested to the EIB that the non-farm payrolls might offer some direction. ?Over the past couple of weeks we had visited some investors and the feedback told us that the market was gearing up for the payroll number last Friday, and depending on what that number suggested, the market would react accordingly.?
After the employment data was released last Friday it became clear that it was the right time to tap into the pool of liquidity at the short end of the curve.
?With the non-farm payrolls last Friday and the market?s reaction, it was clear that the market was not expecting any further big increases in yields at the short end in the US,? said Ralph Berlowitz, head of frequent borrower syndicate at Deutsche Bank in London. ?We found that investors were therefore increasingly comfortable in coming back to the market and we had a lot of enquiries for short dated paper.?
While demand at the short end was high, no supranational had tapped the two year maturity in size since 2000, presenting the EIB with the ideal opportunity to add a new point to its curve and access new investors.
?Because there had not been a global supranational deal in this maturity for several years we were able to uncover a number of accounts that have not been involved in an EIB issue for a long time,? said Chris Lees, head of frequent borrower syndicate at Citigroup in London. ?The EIB was therefore able to achieve genuine investor diversification by accessing a slightly different pool of money.?
The EIB also obtained attractive funding. After initial guidance of the 30bp area over Treasuries, the bond was re-offered at 29bp over, equivalent to around 22bp through Libor. The deal performed well in the aftermarket, tightening slightly to 28.5bp bid.
