IFR Magazine – June 08, 2019

4HEû53Mû-ARCHûûNOTEûPRICEDûATû
BPûOVERû,IBOR ûINûLINEûWITHû7EDNESDAYSû
)04SûBank of America Merrill Lynch, BMO and
Morgan Stanley were leads.
4HEûCLOSESTûPOINTERSûONû)$"Sû&2.ûCURVEû
are a US$2.3bn January 2022 bid around
3.5bp over and a US$1.5bn July 2022 at
BP
)NûlXEDûTERMS û)$"ûHASûAû53BNûû
*ANUARYûûBIDûATûBPûOVERûSWAPSûANDûAû
US$3.1bn 1.75% April 2022 at 5.5bp.

EUROS

KFW MAKES SOLID FIVE-YEAR RETURN

KFWûISSUEDûAû*ULYûûNOTEûONû7EDNESDAYû
that generated more than €8.5bn in orders
though that was well short of the record
õBNûBOOKûFORûITSûPREVIOUSûlVE
YEARû
outing in January.
But with rates rallying it enabled the
development bank to print its lowest-
yielding benchmark on record.
h)TûISûAûSOLIDûTRADE ûNOTûAMAZING vûSAIDûAû
lead banker about the €5bn bond that priced

with a negative yield of –0.318%. He said

investors remained cautious following the

recent sell-off in credit and equity markets.

"UNDSûCONTINUEDûTOûRALLYûLASTû7EDNESDAYû

with the 10-year yield touching –0.23%,

another record low. The yield fell even

LOWERûONû4HURSDAYûTOûn

&IVE

YEARûSWAPûRATESûHAVEûALSOûCOLLAPSEDû

from 17bp at the start of the year to –15bp.

The lead said that while books were much

SMALLERûTHANûFORûTHEûõBNû!PRILûSûINû

January, demand this time was mostly

driven by real money accounts.

h/RDERSûWEREûINmATEDûBYûHEDGEûFUNDSû

back in January and we are not seeing them

driving this trade.”

A second lead said interest came mostly

from central banks and bank treasuries.

-ARKETINGûSTARTEDûBPûWIDERûTHANûWHEREû

leads had originally planned, at the 16bp

area thorough swaps via JP Morgan, LBBW

and NatWest Markets.

h'IVENûTHEûVOLATILITYûANDûUNDERLYINGûRATESû

starting at less 16bp instead of less 17bp gave

us a bit of insulation,” said the second banker.

Leads went on to land at less 18bp – some

2bp wider than their estimates of fair value.

“Before the rally in Bund yields, this

trade could have priced tighter by 1bp. But

THEûBACKDROPûISûVERYûSOFTvûSAIDûTHEûlRSTû

banker. He reckoned at less 19bp it would

only have been possible to raise €3bn

instead of €5bn.

+F7SûEUROûCURVEûISûhPRETTYûmATvûTHEû

closest comparables being €5bn 1.5% June

SûANDûõBNûû/CTOBERûSû"OTHû

were bid around less 20bp on Tradeweb pre-

MANDATEûANDûWEREûQUOTEDûBPûWIDERûLASTû

7EDNESDAY

4HEûMOREûRECENTû!PRILûSûCAMEûATûLESSû

17bp and were bid at less 19.3bp, 0.6bp

wider on the day.

“All in all, given where the market is, this

one is pricing 1bp tighter than the trade in

January. The absolute [yield] level is about

30bp less than the January one [0.013%], so

FORû+F7ûITûISûAûGOODûRESULTv

LOWER SAXONY CAPITALISES ON

RALLYING BUND YIELDS

LOWER SAXONYSûDECISIONûONû-ONDAYûTOû

venture into a market rocked by global trade

tensions paid off, with investors putting in

more than €1.1bn of orders for a 0.125%

April 2027 tap.

The deal came amid an extension to the

lXED

INCOMEûRALLYûWITHû

YEARû"UNDSûBIDûATû

one stage at -0.219%, which at the time was a

new low yield.

Lower Saxony was the only issuer out in

euros on the day as investors digested

headlines about escalating trade tensions

and fears of a recession in the US and

Europe.

'ERMANûSTATESûAûBANKERûAWAYûFROMûTHEû

DEALûSAIDûAREûBENElTINGûFROMûRALLYINGû

bonds, with attractive spreads on offer

versus Bunds.

-ARKETINGûSTARTEDûFORûAûõM

PLUSûSIZEûATû

swaps less 8bp area via DekaBank, DZ Bank,

Natixis, NORD/LB and UniCreditû"$ 

4HEûDEALûWASûLATERûSIZEDûATûõMûTAKINGû

ITûUPûTOûõBNûTOTALû0RICINGûWASûINûLINEû

with guidance at swaps less 8bp and equated

TOûBPûOVERû"UNDS

“It is a pretty compelling spread, which

explains the success,” said the banker.

The outstanding closed the previous week

around less 8.7bp bid and was trading

-ONDAYûATûLESSûBPBPûONû4RADEWEB

SCHLESWIG-HOLSTEIN STUMBLES

ACROSS THE LINE

The wisdom of targeting long-dated Triple A

euro issuance so quickly after a rapid and

deep fall in Bund yields was brought into

sharp relief by the FEDERAL STATE OF SCHLESWIG-

HOLSTEIN’s 10-year.

The trade did not appear to gain a lot of

traction during execution last Tuesday after

Iceland sticks to

tried-and-tested formula

„ SSAR Sovereign will price first bond since December 2017

ICELAND will make a rare capital markets

appearance this week, hoping to capitalise on

the scarcity of its name in order to extend its debt

profile with a five-year bond.

Alongside the new issue, the sovereign is

sticking to a tried-and-test formula by also

announcing a tender.

It is buying back the €750m 2.5% 2020s,

of which €352m is outstanding, mirroring the

approach it took with its last market outing in

December 2017.

“Their strategy has been quite consistent and

they want to keep their presence in the capital

markets,” said a lead banker.

“The markets are in incredibly good shape

now, their economy is booming and they have

had a positive trajectory. Strategically, they

want the capital markets access to be there for

themselves, for local corporates and banks.”

Iceland’s real GDP is projected to grow 2.36%

by 2020, according to OECD data, above the

organisation’s average of 1.82% for the same

period.

Iceland’s A3/A/A ratings fall in line with

emerging European sovereigns, meaning the

country does not fall into any specific bucket and

is “a bit tricky to place”, the banker said.

Poland (A2/A–/A–), and perhaps Lithuania

(A3/A/A–) and Latvia (A3/A/A–), are likely to act

as pricing reference points when looking strictly

at rating metrics, said a second lead.

Poland’s closest pointer is a €2.5bn 3.375%

July 2024, bid at about plus 23bp on Refinitiv

Eikon, while Lithuania has a €500m 3.375%

January 2024 at 13bp.

“The size of the country is relatively small,” the

second lead said.

“It is not an EM country, it doesn’t have

the GDP per capita and the soft metrics point

towards a Double A rated country. However,

since they had capital controls in place and

the fact that it is very open and susceptible to

external shocks is similar to some EM countries,”

he said.

Iceland priced a €500m 0.5% December

2022 at 35bp over swaps in 2017 on a book in

excess of €4.2bn. That bond was bid on Friday at

plus 24.4bp.

The sovereign will hold investor meetings in

London and calls with other jurisdictions on June

11. The tender deadline is June 12.
    Barclays, JP Morgan, Morgan Stanley and
    Nomura are leads.
    Priscila Azevedo Rocha