Bankers agree that the European Investment Bank (EIB) has a secret to its desirable green paper pricing. Previously, EIB has made the largest ESG deal in a single currency. A banker away from the deal analyzed that this success is not merely about the scarcity of green paper. They have a special approach to pricing green paper. Thus, this trade becomes the key to investors’ appetite.
A banker argued that they have a specific approach to ESM which started with a 2bp NIP priced through the curve. This is basically the kind of CAB inaugural scheme under the EARN program. They do not stretch things on the first deal. The impact is, they got a huge book and will be extremely tight.
Another factor leading to a massive demand is the appealing relative value versus government bonds running theme in SSAs. The issue price was at 53.9bp over Bunds and the offering was 1.54% yield. A third banker remarked that the SSA market is still profiting from generous swap spreads and spreads versus govvies.
It is actually a pity because many bank treasuries left the game. The third banker added that this paper remains attractive for central banks. The large asset managers, insurance companies, as well as pension funds are also looking for it. Euros has exercised in the area for more than 10 years.
The books on transactions are Bank of America, BNP Paribas, JP Morgan and NatWest Markets. The books closed over €23bn on a day when volatility urged. Eurozone government debt jumped after European Central Bank official Klaas Knot argued that the central bank should not rule out a 50bp rate hike in July. More green supplies are present. Austria calls for its green debut issue. Germany, the State of Baden-Wuerttemberg mandated banks to update investors about the green bond issuance and framework.
