SSAs accelerate funding, despite defence and trade stresses

Over the first five months of 2025, supranational, sovereign and agency bond issuers raised nearly $660bn-equivalent from benchmark issues in core currencies, 6% higher than a year ago, according to data from GlobalCapital’s Primary Market Monitor.

While borrowing more, these issuers also funded shorter. The average tenor of their benchmark issues in the first five months of 2025 was 8.3 years, versus 8.9 during the same period last year. The deals were slightly better bid at an average 4.7 times subscription ratio, up from 4.5 times.

The average new issue premium paid by SSAs has compressed over the first five months to 1bp from 1.4bp a year ago.

Government bond yields have generally underperformed interest rate swaps globally over the past year. Dollar swap rates have moved more deeply below US Treasuries, while euro swaps moved tighter than Bunds last year.

The moves have pushed SSA spreads over swaps wider, but SSAs have outperformed govvies, so their spreads over them have tightened.

This trend has been visible in the primary SSA market. From January to May, SSAs paid an average 47bp over mid-swaps to print new benchmarks, far wider than the 34bp average a year ago. But their average spreads to govvies have tightened from 41bp to 32bp.

The first five months of the year were full of surprises. The European Commission and Germany unveiled ambitious spending packages to address the increasingly urgent need to strengthen Europe’s defence capabilities, with Germany also looking to invest more in infrastructure.

The extra spending plans have led to investor concerns about higher government borrowing and wider deficits, causing volatile yield and spread moves in the European government bond market.

Then in April, US president Donald Trump proposed sweeping, high tariffs on other countries on so-called ‘liberation day’. The aggressive new trade policy dented global growth and inflation outlooks and further unsettled global markets.

Tariff and trade war-induced volatility has diminished spread tightening during SSA bookbuilds and led to higher new issue premiums.

In the first quarter of the year, issuers managed to tighten pricing on average by more than 2.2bp during execution but that weakened to 1.5bp in April. Meanwhile, the average NIP rose to 2.25bp from just 0.75bp in the first three months.

In April 2024, the average tightening had been nearly 3bp, with the average premium paid only around 1.5bp.

The tariff noise — and the many twists and turns from the Trump administration that followed the initial announcement — notably disrupted SSA issuance in dollars.

Between April 2 and April 15 these issuers sold no dollar bonds. Monthly dollar issuance fell 20% year-on-year in April and was also down about 23% in May. Across the first five months of the year, dollar supply was 9% lower than in January-May 2024.

The dollar deals that did appear in the market in April were also less covered, at only 2.2 times, versus April 2024’s 3.2 times. The average coverage ratio had been 2.9 in the first three months of 2025.

The new issue premium, meanwhile, fattened to an average 1.6bp in April from 1.1bp in January-March. It was also higher than the 1bp in April 2024.

The euro market bounced back strongly in May, in both volume and issuance conditions. Euro volume increased 56% from April and was 18% higher year-on-year.

Dollar issuance still lagged, however, with May 23% lower than a year ago. Issuers, however, managed to tighten their deals by 1.5bp more than they did in May 2024, while reducing their new issue premiums by 0.5bp to less than 1bp.

The underperformance of US Treasuries when tariff concerns were at their sharpest in April has notably compressed SSA issuers’ spreads over US Treasuries on new dollar benchmarks, to just 14.4bp on average in April-May, from 24bp over the same two months in 2024.

This compression also occurred in the euro market, but less starkly — SSA euro benchmarks paid about 8bp less spread over Bunds in April-May 2025 than in the same period last year.

The tightening of French SSA issuers’ spreads over OATs in the past year was another attention-grabbing trend. French government bonds sharply underperformed swap rates — especially in the second half of 2024, when the country was plunged into a political crisis.

In January-May 2024 French SSAs’ spread to OATs had been 26.4bp in the primary market. In the first five months of 2025, it averaged 13.5bp.

The sterling SSA market made an incredible start to 2025, with January issuance up 40.5% year-on-year to nearly £22bn.

The market stayed buoyant throughout the first quarter, with volume 90% higher than in the same period of 2024.

Though April issuance lagged, overall sterling volume in the January-May period was still 49% higher year-on-year.

Taking the UK’s large and frequent Gilt syndications out of the numbers, January-May sterling volume was still 19% up on a year ago, but April-May volume was down 37% year-on-year.

This year, among the non-Gilt sterling deals, a greater amount of price discovery during execution has been observed .

Across the first five months of the year, issuers managed to tighten pricing on 36% of deals during the bookbuild, whereas for the same period in 2024, only two out of 32 issues were tightened.