The sovereign, supranational and agencies team at Barclays worked on eight out of 19 deals worldwide in the first working week of 2015, generating repeat business from a number of issuers.

Another year, another rush of early-bird bond issues from sovereigns, supranationals and agencies (SSA). And another good showing by the SSA team at Barclays, whose proactive style again sees it leading the year-to-date rankings for its segment.

Barclays was 2014's number one lead manager in European sovereigns across euros, sterling and dollars combined, ahead of HSBC and Citi, according to Dealogic. It also held the top spot in global SSA, followed by Deutsche Bank and HSBC.

Charlie Berman, chairman of Barclays debt capital markets (DCM) for Europe, the Middle East and Africa (EMEA), attributes this winning streak to the quality of the team and the bank's consistent focus on the SSA sector. "It's not a surprise," he says. "It's thanks to a long-term strategy, one that the firm is committed to and sticks with."

A flying start

January usually sees SSA issuers lining up to get a head start on their year's funding, and 2015 has been no exception. In January 2014, there was still a lingering sense of crisis, and Barclays was able to shine by identifying demand and advising certain clients to be bold.

"This year, the crisis feeling hasn't been around," says Lee Cumbes, Barclays' head of SSA DCM, EMEA. "Instead it has been about setting a price in the market in an incredibly low-yield environment."

Even when it seemed that yields could barely move any lower, early 2015 issuance demonstrated another downwards lurch. Going into December 2014, the oil price was dropping, inflation estimates were dropping and the European Central Bank's belated quantitative easing was awaited. Bund spreads fell from 75 to 50 basis points (bps), and then fell again in the first week of the new year.

"One option was to sit back and to wait and see what was needed," says Mr Cumbes. "But we thought that was not the right way. Our insight from investors was that there was plenty of demand out there, and what was needed was more of a new issue premium. We had strong sales stories for the issues that we would bring."

Big day

Barclays began the year with multiple deals on the same day, something that would become almost commonplace. In the first proper working week of January it was joint bookrunner on the year's first SSA benchmark deal, a $2bn 10-year issue for German agricultural lender Rentenbank. This was Rentenbank's first 10-year issue since 2007, and its second largest transaction ever. As the new year's first SSA issuer, it met strong demand. Pricing guidance of mid-swaps plus 10bps area could be tightened to a final 9bps over mid-swaps, or 19.55bps over Treasuries, yielding 2.112%.

In recent years, regulatory changes have encouraged banks to become more significant investors in top-quality SSA bonds, which helps pricing. So it was not surprising that banks were the keenest bidders for Rentenbank's AAA rated paper, taking 44% of the deal, followed by central banks and official institutions (30%), fund managers (21%) and insurance, corporates and pension funds (5%).

"With bank treasuries being more active, this has bolstered demand for 10-year maturities, which offer higher yields but are not too long," says Mr Cumbes.

On the same day, Barclays led a €350m tap on German lander Hessen's December 2024 issue with a super-low 0.875% coupon. But it was the following day when things got really interesting, with Barclays acting as bookrunner on issues from both Belgium and Ireland.

Belgium, rated Aa3/AA/AA, launched the first of what are expected to be three new fixed-rate obligation linear (OLO) bonds this year. Its bonds had enjoyed a strong rally at the end of 2014 and the start of the new year, benefiting from the risk-off environment, so it was decided to take advantage of the first possible issuance window.

The bookrunners went out with initial pricing thoughts of mid-swaps plus low to mid-teens, and indications of interest quickly grew to more than €4.5bn, not counting orders from the bookrunners themselves.

Eurozone differentiation

This was in a week when yields on Greek government bonds reached their highest levels for more than a year. But Belgium and Ireland appeared insulated from fears of a Greek exit from the eurozone, and orders for the Belgian deal eventually exceeded €11bn. The spread was finally set at mid-swaps plus 11bps – representing a new issue concession of 3bps over the interpolated OLO curve – with a breath-taking coupon rate of 0.8%.

The pricing was the tightest level against swaps and Bunds for a new 10-year OLO since 2008, and the coupon was simply the lowest ever for a 10-year European government bond nominal benchmark. The latter record only stood for a day, before being broken by German policy lender KfW. But in November 2011, 10-year yields for Belgium had spiked at just under 6%. "This year, Belgium was a price setter for other sovereigns," says Susan Barron, a Barclays managing director in frequent borrower origination.

Investors seemed anything but discouraged. Ireland, with its troubled recent history, has been completely rehabilitated, if the response to its seven-year benchmark offering is any guide. With initial price thoughts of mid-swaps plus high 30s, the spread was eventually fixed at 36bps, giving a reoffer yield of 0.867% on a coupon of 0.8%. Orders totalled €5.75bn and a €4bn transaction was priced.

With Ireland rated Baa1/A/A- and a seven-year maturity on offer, banks were less evident. Fund managers took 42%, while banks and central banks combined took 34%, and insurance and pension funds bought 13%. While geographic distribution was heavily skewed to the UK and Europe, it was noteworthy to see Asian investors, who would previously have stayed away, accounting for 6% of the total.

Agency agenda

The next day saw a triple act, as the team led issues for KfW, Fannie Mae and the European Investment Bank (EIB). KfW duly broke Belgium's short-lived record low for a 10-year euro SSA coupon. Its €3bn benchmark pays just 0.625%, with a reoffer yield of 0.659% and a spread of 16.8bps over comparable Bunds. Banks piled in and took fully two-thirds of the deal. At the same time, KfW sold a £300m ($461m) four-year bond with a 1.125% coupon.

US mortgage guarantee bank Fannie Mae sold a $3bn five-year bond with a 1.625% coupon, and the EIB tapped its February 2020 issue with a £1bn floating rate note.

In that first working week, there were 19 SSA deals globally, Mr Cumbes says, adding that Barclays was on eight of them. "We were number one by volume at the end of that week," he says.

Business did not get any less brisk, and Barclays was still number one in global SSA by the first week of February. It was again mandated by Ireland when the sovereign sold its new 30-year bond, the first in the market after the European Central Bank announced that it would accept 30-year paper as collateral in its new quantitative easing arrangements. With €11bn of orders from more than 350 investors, a €4bn bond was priced with a 2% coupon, priced at a spread of mid-swaps plus 90bps.

Barclays likes to highlight its repeat SSA mandates as proof of customer satisfaction. It has led five out the six Ireland deals since 2013, for example, and has enjoyed serial mandates from Belgium and Spain on euro transactions.

The team was on Spain's huge €9bn 10-year transaction with its 1.6% coupon in January, attracting €17bn of demand. In early February, it led the EIB's 10-year $3bn global benchmark. With a coupon of 1.875%, this was priced to give a spread of 18.5bps over comparable US Treasuries – the tightest such 10-year dollar SSA spread for over five years, and a record low coupon for a new 10-year dollar SSA benchmark.

As Mr Berman points out, the big event has been quantitative easing (QE) from the ECB, which surprised to the upside in volume and scope. "The absolute size of buying and the breadth of securities involved may well produce knock-on price effects in equities and into dollar and sterling markets, as investors look for alternative assets," he says. "With investors looking at low yields in Europe, QE will arguably drive yields lower in those markets too. Our job is to make sure we interpret that demand correctly and create opportunities for our clients to tap into it."

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