Less is more for SSA issuers
Lower issuance volumes for the rest of the year will help spreads and strategic planning
After racing to secure funding in the first half of 2023, public sector bond issuers might now be able to sit back and relax.
The EU provided a splendid example this week. Having recently revealed a funding requirement of €40bn for the rest of the year — much lower than many expected and half what it issued in the first six months — the supranational built a record order book for its syndication this week, allowing for greater spread tightening and a lower new issue concession than normal.
But the whole European supranational, sovereign and agency sector could benefit from a similar dynamic in the coming months, as many issuers are 60%-70% funded, if not more. The EU itself is nearly 70% done and the European Investment Bank 80%. KfW has also crossed the 70% mark after bringing a $4bn trade this week and Cades, another SSA with a big programme, has managed about 75%.
Being well funded allows issuers to use the rest of this year's more limited and disparate issuance windows better as investors deal with economic data releases, central bank meetings and unexpected shocks like March's banking crisis. It also means less competition and distraction on any given day, and greater investor focus and attention.
Reduced supply from the EU, a big seller of duration, also means that there will be opportunities for other issuers to extend their curves.
New issue premiums are already falling, with the average benchmark concession down to 1.7bp in the second quarter of 2023, versus 2.3bp the previous quarter, according to GlobalCapital's Primary Market Monitor.
No responsible issuer can ever put its feet up, but for those in the public sector, their hard work earlier in the year is about to yield results.