ESM-EFSF

Rating: Aa1/—/AAA

KfW gathered strong demand for its bond issue on Wednesday — the third seven year euro deal from an SSA issuer this week — as investors saw relative value in it. The European Stability Mechanism is looking to follow with a similar tenor after sending banks a request for proposals for its first benchmark of the year.

Rating: Aa1/AA/AA

A triple-A rated supranational and two sovereigns from the eurozone periphery took the opportunity to lock in low rates at the long end this week, amid strong market conditions. SSA bankers expect more supply to follow at this part of the curve over the coming weeks, including from France and potentially Greece.

Navigating the covered bond market will not be without its challenges in 2020. The Targeted Longer Term Refinancing Operation (TLTRO), European Central Bank deposit tiering and the Covered Bond Purchase Programme have collectively distorted the market, but added to this concoction is the impact of negative interest rates. Against this backdrop issuers, investors and investment bankers gathered in Munich in November to discuss the outlook for covered bonds. It is likely that new issue premiums will gradually tighten, but the path is unlikely to be smooth. January is typically the busiest month, but in 2019, issuers that funded this early paid the highest spreads. And, with the ECB expected to buy in the region of €4.5bn covered bonds a month, issuers will not feel compelled to move early. But the ECB monetary policy has unwelcome implications. Covered bonds have begun to lose value against government bonds, and this will extend if the ECB is unable to loosen restrictions on government bond purchases.

The European Financial Stability Facility took the spotlight in the euro public sector bond market on Monday with an intraday execution ahead of a busy week. The European Investment Bank, Council of Europe Development Bank, Spain and Cyprus have all announced new deals.

Investors piled into the euro public sector bond market on Wednesday, allowing borrowers to achieve well subscribed order books and minimal new issue concessions for a range of maturities.

The European Stability Mechanism (ESM) has announced a larger than expected borrowing programme for 2020, following the decision to roll over its bill proceeds into its bond funding. The European Investment Bank (EIB) also has a higher target for next year.

Navigating the covered bond market will not be without its challenges in 2020. The Targeted Longer Term Refinancing Operation (TLTRO), European Central Bank deposit tiering and the Covered Bond Purchase Programme have collectively distorted the market, but added to this concoction is the impact of negative interest rates. Against this backdrop issuers, investors and investment bankers gathered in Munich in November to discuss the outlook for covered bonds. It is likely that new issue premiums will gradually tighten, but the path is unlikely to be smooth. January is typically the busiest month, but in 2019, issuers that funded this early paid the highest spreads. And, with the ECB expected to buy in the region of €4.5bn covered bonds a month, issuers will not feel compelled to move early. But the ECB monetary policy has unwelcome implications. Covered bonds have begun to lose value against government bonds, and this will extend if the ECB is unable to loosen restrictions on government bond purchases.

The European Union (EU) and the European Atomic Energy Community (Euratom) have switched the legal framework of their debt issuance programmes from English to Luxembourg law as they prepare for the UK’s withdrawal from the union.

The total funding needs of the European Stability Mechanism and the European Financial Stability Facility is expected to drop next year.

This week's funding scorecard looks at the progress of Europe's supranationals and agencies in the middle of November.