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Investors rush into rare dual tranche deal from Portugal


SSA bankers lauded Portugal on the timing and execution of a dual tranche benchmark deal on Tuesday, as investors ploughed into the offering. Elsewhere, Spain revealed its syndication plans for 2015 and Italy broke records at the long end of the curve.

Leads BBVA, Caixa, Citi, Crédit Agricole, Danske Bank, Morgan Stanley and Nomura priced a €2bn February 2045 tranche for Portugal on Tuesday afternoon at mid-swaps plus 282bp, at the tight end of initial guidance of mid-swaps plus mid 280s. Portugal also sold a €3.5bn October 2025 at 212bp over swaps, from initial guidance of mid 210s.

Final allocation statistics were not available as GlobalCapital went to press, but investors placed around €8bn of orders for the 10 year tranche and about €6bn for the 30 year, according to one of the leads. Lead managers took around €1.725bn in total.

“That’s blown out of the doors,” said an SSA syndicate official away from the deal. “It’s a very good trade.”

The strong demand — which had reached nearly €7bn on the 10 year and over €5bn on the 30 year by 10.30am London time — allowed the leads to revise guidance in to swaps plus 212bp-215bp on the shorter tranche and 282bp-285bp on the longer dated paper.

Portugal was wise to bring the deal before a European Central Bank meeting on January 22, when the central bank is widely tipped to unveil a programme of sovereign quantitative easing, said a head of DCM.

“If there’s a time to get it done then it’s now,” said the DCM head. “Ireland was a good example last week, not just the levels they achieved but the lack of a new issue premium. If you’re going to do a deal, do it before the ECB meeting. Portugal picked its spot perfectly.”

The European Court of Justice issues a preliminary opinion on the legality of the ECB’s outright monetary transaction policy on Wednesday, something that many analysts believe could affect the eventual structure of eurozone sovereign QE. But the DCM head said that investors and issuers are less concerned about this event than the upcoming ECB meeting.

Steady needs

Spain unveiled a slightly reduced funding need for 2015 on Tuesday and also revealed its syndication plans for the year.

Bond issuance will fall to €141.996bn in 2015 from €142.23bn last year, while bill volumes will drop by €1.73bn to €97.373bn. As well as the sovereign’s needs, the cash will also provide most of the funding requirements of Spain’s regions and local governments.

Part of the bond volume will come from syndications of new 10 year, 15 year and 30 year benchmarks. Spain last sold 15 year and 30 year syndications in 2013.

This could also be the first year that Spain sells eurozone inflation linked bonds via auction. The sovereign debuted in the format with a 10 year and five year syndication last year and could reopen those lines through the auction format this year.

Spain is also open to selling deals in currencies other than the euro and through private placements. The latter is a technique it used to great effect when it boosted its maturity profile with a €1bn October 2064 private deal in September.

The sovereign auctions €4bn-€5bn of October 2017s, January 2020s and January 2022s on Thursday.

Long term savings

Italy was already in auction action this week and made a big saving at the long end of the curve on Tuesday, although the bulk of the paper it placed on the day was in shorter maturities.

Investors took the full €1.5bn of March 2030s available at an average yield of 2.46% — 51bp down from the last sale of the tenor on November 13 and the lowest yield since the launch of the euro. Demand outstripped supply by a ratio of 1.53 to one.

Italy pushed down its seven year borrowing costs by almost the same amount. It printed its full €2.5bn target of December 2021s at a yield of 1.29%, a drop of 45bp from two months ago. It was also the lowest yield at an Italian seven year auction since the euro’s creation.

Yields also fell at the shorter end of the curve, where investors took the full €3bn of Italian January 2018s on offer. The yield of 0.62% was 15bp down on two months ago, although still 10bp above the euro era low set on September 11.

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