Such was the supranational and agency market’s enthusiasm for the deal that it overshadowed very respectable trades from the Asian Development Bank (ADB) and KfW.
World Bank mandated Barclays, BMO Capital Markets, Deutsche Bank and Nomura for the deal on Tuesday. After opening books on Wednesday, they moved pricing in from initial price thoughts of 8bp area through swaps — circulated on Tuesday — to guidance on Wednesday of 9bp area then set the spread at 10bp through.
Books were closed with orders over $6.8bn allowing the leads to set the size on the June 2018 bond at $5bn.
Demand was helped in no small part by new US investors with buyers from the country taking 18% of the paper.
“The share of US investors was higher than normal at 18%,” said George Richardson, head of capital markets at World Bank.
“Of the $950m that went to the US, 12 orders totalling $240m were to official institutions such as municipal, county and state treasuries, which we’ve been working to try to educate and get into our books for a long time.
“They’re hungry for alternatives — they’ve only bought US Treasuries or agencies for decades. It’s been a lot of work and now it’s getting traction — particularly this year they’re asking us to come to conferences and asking questions.”
Those US investors are looking for alternatives from their typical asset choice of names like Freddie Mac and Fannie Mae, which have been reducing issuance over the last few years. Even more investors could come on board.
“They don’t know what supranationals are so it’s starting from scratch — this year California changed its authorisations to allow its counties, cities and municipalities to invest in supranationals ,” said Richardson.
“California happened to be stricter on their code for lending, but added a paragraph allowing these treasuries to buy three supranationals : ourselves , IFC and IADB,” he continued. “Other states give the individual professionals the right to make their own decisions. But there are some other states we’re working on that have similar guideline issues to what California had.”
Getting the investors on board can become political, added Richardson. But the market could open to other supranationals than just the Washington based issuers .
“Some of the politicians don’t like the idea of local money, which is sometimes not too sophisticated, being used to buy foreign assets which we were deemed to be by some of these politicians,” said Richardson. “But over time, we hope they’ll become more comfortable with the asset class, and add the non-US headquartered supranationals .”
Best of the rest
On Tuesday, Deutsche Bank, Nomura and RBC Capital Markets priced a $3bn May 2025 for KfW at 6bp over mid-swaps. The spread was already finalised when books were opened on Tuesday morning, after the previous day’s initial price thoughts of 6bp area over swaps had drawn indications of interest of more than $2.5bn.
The final book was over $4.2bn.
A larger deal may have been possible but for a weaker backdrop on Tuesday compared to the day before, according to a head of SSA syndicate at one of the leads. That was due to Monday’s news that the Greek government had made a claim on cash held by public entities in order to meet upcoming debt repayments.
“We talked about doing a larger deal with the leads,” said Klaus-Peter Eitel, vice president, new issues at KfW.
“We finally decided that we wanted to go for the highest quality allocation possible and make sure that the bond performs in the secondary market which it now does — we’ve seen it tighten 2bp on the break, which underlines the quality of the allocation of the trade.”
The deal tightened even though it represented a spread of 14.15bp over US Treasuries — matching KfW’s tightest ever spread over the US government, which it achieved with a $5bn April 2020 in late March.
At the other end of the curve, ADB sold a $2bn July 2017 on Tuesday. Leads Citi, HSBC and JP Morgan priced the paper at mid-swaps minus 9bp — in line with guidance of minus 9bp area.
The final book was in excess of $2.25bn.
“For the last month there has been very little short dated supply from the highest quality names in dollars,” said Alex Barnes, head of SSA syndicate at Citi.
“The short end is where swap spreads are the most attractive. In the two year part of the curve they are 26.25bp and three year, 22.5bp, whereas in seven years they are just over 6bp, for example.”
