Germany

Rating: —/—/AAA

Sterling issuance from non-UK SSAs kept up its record start to the year this week, as UK bank treasuries are searching for safe places to put sterling, afraid the country will leave the EU without an exit deal.

It was another sparkling week in dollars for public sector borrowers, with Asian Development Bank the pick of the bunch as it brought the tightest deal of the year so far versus Libor and US Treasuries. More supply is expected for next week, although some SSA bankers feel the market could do with a “breather”.

Wider euro spreads versus swaps and Bunds had already led to some superstrong trades in the currency this year, but Spain outdid them all this week with the largest ever book for a public sector euro benchmark. Every other euro deal also attracted heavy oversubscription with minimal concession, paving the way for expected supply next week from a “large German agency in the short end” and a “central European sovereign in 10 years”, according to one head of SSA syndicate.

Investors are returning to the covered bond, sovereign and supranational agency (SSA) markets in their droves. Despite exceptionally heavy issuance, the startling breadth and depth of demand seen in many deals this week caught market participants off guard — not least the investors themselves. Bill Thornhill reports.

PKO Bank Hipoteczny (PKO), Deutsche Pfandbriefbank (PBB) and Raiffeisenlandesbank NiederÖsterreich-Wien (RLB-NW) all found strong demand for their €500m covered bond deals this week.

Germany’s largest residential property company Vonovia attracted €4.5bn of demand for its latest deal on Thursday, as the property sector continues to be one of the more popular in the corporate bond market.

World Bank on Thursday added to a record breaking start to the year for public sector sterling issuance with yet another large trade. A German agency is set to bring another deal this Friday in a market that shows no signs of slowing down.

Volkswagen Bank started its funding for 2019 with a hefty four tranche deal on Thursday that will contribute to its minimum requirement of own funds and eligible liabilities (MREL) when the German regulator decides what that should be.

The public sector dollar market on Wednesday showed that it had more than enough depth to cope with a pair of issuers bringing deals in the same maturity with just a basis point of difference in initial price thoughts, as both trades came in size and at tightened pricing. Another agency is set to dip into the demand on Thursday.

Four covered bond issuers returned to the market on Wednesday and, in contrast to the start of the year when concessions were 5bp-7bp, none paid more than 2bp.

Two SSA borrowers will go head to head in the dollar market on Wednesday, bringing five year benchmarks with only 1bp difference in initial price thoughts.