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'Mighty' Germany preps rare deal

The Finanzagentur is set to make its first appearance in syndicated format since 2009 with a 30 year inflation linker that will extend the sovereign’s inflation linked curve.

CommerzbankCrédit AgricoleGoldman SachsHSBC and Société Générale won the mandate to syndicate Germany’s deal, which will be €2bn-€2.5bn in size, but is expected to be tapped to more than €10bn.

“There is no other triple-A rated inflation-linked paper out there so Germany can capitalise on a gap in the market,” said PJ Bye, global head of public sector syndicate at HSBC in London. “We expect investors that buy other long dated European inflation linkers to have strong demand. The backup in European government bond yields over the last six weeks should help. This is likely to price at negative real yields, but it will be a lot closer to zero than it would have been a month ago.”

The deal, which will use the August 2046 nominal Bund as a pricing reference, could come as soon as next week, subject to market conditions. The Finanzagentur has cancelled an inflation linker auction on June 9.

Bund yields have been engulfed in volatility this week, but SSA bankers are confident that even in tricky market conditions the Finanzagentur can get €2bn-€2.5bn away as it is no stranger to raising that kind of volume at auction.

“We’re talking about the mighty Germany here,” said one SSA syndicate head.  

The 10 year Bund yield soared on Wednesday afternoon to top 85bp, having traded below 50bp at points on Monday.  

“The Finanzagentur will, of course, be sensitive to volatility in the Bund — we want to pick a moment to execute when there is the stability to get a deal done,” said Bye. “But despite the very large swings in Bunds over the past three days, breakeven inflation rates have been very steady. They outperformed a bit on the higher than expected eurozone inflation outlook on Wednesday, but they have been very stable, considering.”

France, Greece, Italy, Sweden and the UK are the only other European sovereigns with inflation-linked bonds longer than 25 years outstanding, according to Dealogic. The syndication will be Germany’s first appearance in the format since September 2009, when it sold a $4bn September 2012 print. Its last euro syndication was in September 2006 — a €3bn April 2016 inflation linker . 

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