Since the summer, the SSA market has been plagued by investor indifference in the 10 year part of the curve. The result has been plain to see — a string of benchmark sized trades sporting order books that would be best described as lacklustre.
Bank Nederlandse Gemeenten, the European Financial Stability Facility and the European Investment Bank (with a tap) are among those to have closed deals with undersubscribed books in recent weeks.
The problem is spreads, which have screamed in over the summer. While cheering for issuers in one sense, this also means that investors — particularly those yield sensitive ones that tend to buy at the long end — are unwilling to buy paper. They fret that the market might be close to its height.
At the same time, this kind of ultra low rates environment is exactly when it makes sense for issuers to attempt long-dated trades. Many are getting close to their funding targets for the year, but at these levels it makes sense to pre-fund.
In any case, some still have quite a bit to do for 2012. KfW, for instance, still has €18bn to get away before the end of the year. It has been looking at a five or 10 year euro benchmark for some time. So far it has held off.
Enter the EIB, again, and this time it might have cracked it. On Tuesday it became the first supranational or agency issuer to print an oversubscribed 10 year euro benchmark since the start of the summer.
It did it by moving with the times. To ensure that it paid a premium over France, the EIB had to announce guidance wider than the initial price thoughts it had released the previous day. It might get some stick for that, but the book speaks for itself.
That sort of pragmatism hauled in €4.5bn of orders from 80 investors for a €3bn print. The new issue premium was between 4bp and 7bp, depending who you ask.
The EIB has shown its peers what can be achieved by not trying to snaffle every last basis point off the table. If they want to get 10 years away, others should take note.
