In the end, the deal priced in line with
TALKûATûPLUSûBPûANDûWITHûAûSIZEûSETûATû
€500m.
A second banker away from the deal
viewed the trade as a good one. “Price-wise
ITûLOOKSûOKAYûFORûAû
YEARûFROMû"AVARIAv
He also said that the issuer probably opted
for a private placement because it was not
sure if it could do a benchmark at that level.
4HEûlRSTûBANKERûAWAYûFROMûTHEûDEALû
attributed the success of the Bavarian trade to
the quality of the issuer’s name. “I am sure that
other Laender would have had to start higher.”
He also said that the book reached €500m
(ex-JLMs) last he heard.
The two bankers away from the
transaction expect to see further private
PLACEMENTSûFORû,AENDERûANDûSAYûTHATû3AXONYû
has already ventured out with one.
.ORD," was sole lead on Bavaria and joint
bookrunner on MecVor alongside
Commerzbank, DekaBank, DZ Bank and ,""7.TIGHT BADEN-WUERTTEMBERG
FIVE-YEAR DRAWS STRONG DEMANDThe STATE OF BADEN-WUERTTEMBERG was greeted
WITHûROBUSTûDEMANDûFORûITSûlRSTûFORAYûOFûTHEû
year, a deal that priced with the tightest
spread seen in the Laender sector since
issuers began to fund coronavirus aid
programmes.“This trade shows demand is still strong
in the market, especially for high-grade
names,” said a banker away from the deal.
“With the scarcity and quality of that
name, they were able to achieve tighter
pricing than other Laender in this part of
the curve.”
Guidance came at the mid-swaps plus
BPûAREAûFORûTHEûlVE
YEARûBENCHMARKû)Nû
COMPARISON û3CHLESWIG
(OLSTEINSûFOUR
YEARû
and Hamburg’s six-year notes – which
priced on March 25 and 30, respectively –
WEREûQUOTEDûATûPLUSûBPûANDûBP û
respectively, on Tradeweb.
"OOKSûPASSEDûTHEûõBNûMARKûWITHINû
two hours, which enabled the issuer to
RElNEûTHEûlNALûSPREADûTOûPLUSûBPûANDûSETû
THEûlNALûSIZEûATûõBNû)NVESTORSûRUSHEDûINû
SUBSEQUENTLYûANDûPUSHEDûTHEûlNALûORDERû
book north of €2.8bn.
“That’s no surprise for this name and for
THISûMATURITYûnûAûõBNûSIZEûISûQUITEûSTANDARDû
FORûTHEMûANDûTHEûlNALûSPREADûINûTHEûCURRENTû
environment is a great success for them,” a
third banker said.
Bankers said Baden-Wuerttemberg
BENElTEDûFROMûTHEûRECENTûTIGHTENINGûTRENDû
and that it had scope to tighten further in
secondary trading, like Bavaria’s recent
three-year, which was quoted 3.4bp tighter
than launch on Tradeweb, at mid-swaps plus
8.6bp.Most market participants expect demand
will remain strong for Laender paper.
A syndicate banker said that with Q2
starting, people are receiving a bit of money
and will continue to invest and rebalance
portfolios that contain old negative-yielding
instruments.
4HEûlRSTûBANKERûEXPECTSûINVESTORûINTERESTû
will remain especially strong for Laender
that have restricted debt issuance plans.
“We may see some restructuring of the
Laender segmentation, between those who
have limited funding needs and those with
higher needs,” he said.
Others are more cautious however.
“There has to be a breaking point or there
has to be a point when the deals keep
getting cheaper, presumably,” a DCM
banker said.
“It does seem a bit aggressive the way
these issuers are going at it, but they’re
getting deals done and clearly they’re under
pressure.”
Market players are also speculating on the
effect the ECB’s Pandemic Emergency Purchase
Programme will have on the sector and how it
will impact on secondary trading levels.
4HEûlRSTûBANKERûSAIDûTHEûMAINûQUESTIONû
was whether the programme would only
target peripheral credits or if it would
extend to core names, including Laender
and other high-grade issuers.International Financing Review April 4 2020 35BONDS SSARmore accurate? For me, it’s more the former –
deals are getting done tighter and tighter and
it’s less about the curves repricing,” said a DCM
banker away from the deal.
Distribution of the deal was to a “huge range”
of investors, the lead reported. More than 300
accounts participated. A “very low” allocation to
fast money is likely.
The deal forms part of Portugal’s response to
the coronavirus crisis. Yesterday the sovereign’s
Treasury and Debt Management Agency IGCP said
that it will “proceed with the acceleration of the
execution of the medium and long-term issuance
programme” as well as upping its Treasury bill
programme for the year to €3.1bn from €1.3bn.
Target sizes for government bond auctions in
Q2 will increase by €250m to €1.25bn–€1.5bn.
IGCP expects to update its 2020 funding plan
“once a comprehensive assessment of the overall
impact on public accounts is complete and
whenever deemed necessary”.IRELAND, UK IN VIEW
A fifth sovereign announced plans for a
syndication. IRELAND will launch a new
government bond this month, its National
Treasury Management Agency said.
The EU state has no auctions scheduled for
April, though it will offer treasury bills on April 16.
Its next bond auction is on May 14.In addition, the UNITED KINGDOM now plans
two syndications in May, the Debt Management
Office said on Tuesday. Having earlier announced
one syndication in Q1 of its new financial year – a
long conventional Gilt planned for launch in May- the DMO is now planning two conventional
syndications in May.
It currently expects these to be for a new 10-
year and the issue or reopening of a Gilt with
over 30 years to maturity. “The DMO welcomes
feedback relating to these transactions ahead of
the comprehensive remit revision on 23 April,” it
said.
Ahead of the new syndications and its remit
revision, the DMO is to auction an unprecedented
£45bn of Gilts in April. This will mark the UK’s
highest ever monthly funding volume.
KFW IN FULL
Meanwhile, KfW launched a high-speed June
2023 benchmark. Having limited its return
to the market the previous week to €4bn
(within its €3bn–€5bn benchmark range but
disappointing to some market players), the
Triple A closed a €5bn trade in less than two
and a half hours.
Lead managers Citigroup, HSBC, NatWest
Markets and UniCredit tightened the offering 2bp
to mid-swaps plus 4bp against an order book of
more than €15bn (excluding JLM interest).The deal’s swift execution and full size
represents “a sign that the market is getting back
to business”, said one banker away from the deal.
“Illiquidity is still there but on the more liquid
names like KfW and EIB, there is an improvement
and the screens are slightly more accurate than
they were,” added the DCM banker.
The order book was “almost a sovereign type”,
said one lead manager who reported “some
really juicy orders and nice diversification”. Its
size grew significantly after the spread was set
as some major bank treasury and central bank
investors placed orders, having held back in
anticipation of the spread tightening further.
The three-year maturity, which had been
fairly unpopular before the recent crisis, helped
attract a broad spread of buyers. Its relative
value against OATs, Bunds and floating-rate
benchmarks significant for asset swappers
(Euribor plus 11bp and the low 20s over Eonia)
also contributed.
At 4bp, the launch spread represented a new
issue premium of as little as 2bp, the lead noted.
“Despite spreads moving in, there is still
a lot of value left over,” said a second lead
manager, who noted extremely strong secondary
performance.
“The market is clearly improving in tone for
SSAs despite broader moves,” he said.
Julian Lewis6 IFR Bonds 2327 p 25 - 65 .indd 35 03 / 04 / 2020 20 : 28 : 59