Public sector issuers have had an incredible run in May and much of April. Some issuers were playing catch-up with issuance plans that they had delayed earlier in the year after the outbreak of Iran war, while others brought forward what remained of their funding programmes to evade risks further down the road.
The euro issuance volume in each of these two months, while still ranking behind January and February this year, made them busier than any month in 2025, with the exception of January, according to data from GlobalCapital's Primary Market Monitor.
Deals have been well oversubscribed — by 6.7 times in May — and the average book size was €6bn larger than in March. Meanwhile the average new issue premium for a syndicated benchmark in the currency has dropped to below 0.9bp from nearly 1.2bp in April. It was a similar picture in dollars with a rebound in issuance volume, growth in order book size and compressed NIPs.
Few in the market foresee NIPs rising any time soon, thanks in the main to the elevated yields on offer. Even after the rally since mid-May, yields in all major markets remain at historically high levels. From Germany to Japan and the UK, government bonds are trading at levels not seen since the 2008 financial crisis or, in some cases, the 1990s.
But while the outright levels mean investors are not obsessing over every last 0.1bp on a new issue, it does not mean all tightly priced transactions are guaranteed to be well received.
While markets have become less jittery compared to the early days of the Iran war, risk sentiment is still fragile, and the path of inflation and interest rates remains uncertain. Any renewed volatility could push NIPs higher once again to keep investors engaged with deals.
And in the unlikely scenario of yields rallying too much too quickly, the loss of some investors could also push new issue pricing wider versus secondary markets.
The primary market for sovereigns, supranationals and agencies is heading towards its usual summer slowdown. That may start earlier this year than before, given the recent wave of front-loaded issuance. After the summer, issuance conditions could well shift, and in illogical or unpredictable ways — just as happened in August and September 2024.
Even with NIPs as tight as they are and price sensitivity seemingly low, caution is warranted when it comes to deal execution. Investors are not to be taken advantage of through aggressive pricing. The SSA market has had a remarkable first five months of the year despite the war. There is no room for issuer complacency if the market is to function as well for the rest of the year