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People and MarketsCommentLeader

All eyes on EU


Supra’s next syndication matters more than ever

The euro market got off to a nervous start after the summer break last week, with investors seeming less enthusiastic about new issues than expected. Although Germany received a QE-style order book for its 30 year tap this week — with demand exceeding €33bn — many issuers held back from joining the first batch of borrowers.

There were multiple headwinds: hawkish comments from both the Fed and the ECB over the weekend, key data releases including European inflation and US non-farm payrolls, public holidays in the UK, and in the US next week, and a seemingly more prolonged summer break this year.

With so many reasons why market participants are finding it hard to gauge sentiment as autumn approaches, perhaps this new found caution is for the better. Uncertainty stemming from recent deals only adds to the pressure on issuers aiming to restart funding next week. While dealers are confident that investors will be back at their desks, they warned that issuers must be pragmatic about pricing.

Many issuers are said to be eyeing the market next week, including some jumbo outings. But the real test will be the European Union’s syndication scheduled for the week of September 11, for which a request for proposals was circulated on Thursday.

The EU will have to get it right. Not only because it will be its first syndicated bond sale after the summer and will set the tone for its funding for the rest of the year, but — more importantly — the deal matters even more to the rest of the SSA market than most other EU syndications. After the weak reception for some deals last week, the EU’s trade could be a key indicator of change in the SSA primary market.

Over the past couple of years, with the EU an ever more influential borrower, the market has used its syndications as a barometer for sentiment.

A well covered EU trade, which tend to be large, would reassure issuers and dealers of the strength of the primary bid, especially as investors lack the incentive to put money to work in light of recent central bank hawkishness.

But because the EU has a tried-and-tested approach to pricing, how it executes this deal could be another template for other issuers — particularly if it includes more new issue concession, as has typically been the case, and tightens less aggressively than the usual 2bp.

The EU has established itself as a European benchmark. But with more influence comes more responsibility, and there is little margin for error in its next trade.