Guarantor: Federal Republic of Germany
Rating: Aaa/AAA
Amount: $1bn
Maturity: March 1, 2007
Issue/re-offer price: 99.947
Coupon: 2.7%
Call option: at par on 01/03/05
Spread at re-offer: 50bp over the 2.625% November 2006 UST
Launched: Tuesday February 10
Joint books: Bear Stearns, Citigroup
Bookrunner's comment:
Citigroup ? The decision was taken to launch this, KfW's fourth global callable security, after Freddie Mac decided to pass on its callable benchmark issuance on Monday.
The reception was extremely good. It is the kind of structure that has a certain appeal beyond the traditional investor base for KfW's vanilla globals and clearly there has been lot of appetite for short dated dollars recently, particularly from Asia.
The callable feature of this transaction serves to enhance the yield available and, because the yield curve is so steep, the three non-call one structure allows investors to express a view that rates will not rise as quickly as the yield curve implies, thereby picking up a significantly improved return over one year paper.
If rates do rise in the way suggested by the yield curve and the bond is not called, investors still benefit from the yield kicker.
The order book was driven by Asia, with a very large number of Asian and other central banks in the book, representing approximately 60% of the book. The transaction was also successful in attracting a variety of US institutions with approximately a quarter of the deal placed with US accounts.
The remainder was accounted for by a number of European and Middle East accounts, both institutional and retail.
Given the relative infrequency of callable issuance from non-US agencies, investors were keen to take up the trade to diversify out of callable US agency market into a liquid European sovereign instrument.