Otto Weyhausen-Brinkmann, vice president and head of new issues at KfW Bankengruppe in Frankfurt, tells KangaNews the agency has not needed to change its issuance strategy due to the diversified funding options already available to it.

SSAs generally have not faced any issues funding in euros alongside the EU. Weyhausen-Brinkmann says: “Given the ECB [European Central Bank]’s ongoing buying programme, we have seen favourable conditions in the euro market over the course of the year. Oversubscription levels are high and new-issue premia limited for KfW’s transactions as well as for many other euro deals.”

Weyhausen-Brinkmann adds that the Bund swap spread widening over the European summer has further helped pricing. With large redemptions through Q3 2021, he expects favourable conditions to persist.

Mark Byrne, syndicate at TD Securities, says the EU’s transactions have actually tended to generate momentum for other SSA euro deals. In fact, he says rallies have typically followed EU syndicated deals, leaving other issuers able to benefit from strong demand.

European Investment Bank (EIB) and KfW deals on the day after the EU’s September syndication provide a case in point, Byrne says, with each transaction also attracting record-breaking oversubscription.

Sandeep Dhawan, head of funding at EIB in Luxembourg, agrees that fears of a crowding-out effect and repricing of the SSA market have not materialised. “On the contrary, the clear narrative behind the EU’s evolution as a consolidated issuer, and the clarity of market approach and execution, has led to a groundswell of renewed and additional focus from dealers and investors in the euro SSA bond market.”

Florian Eichert, head of covered bond and SSA research at Crédit Agricole, says most accounts participating in European SSA transactions have been buyers in the past. “Global central banks’ currency-reserve managers have always had an element of SSA debt in their euro reserves,” he comments. “Hence, I am not sure the overall SSA market is now benefiting from a lot of investors that previously would not have looked at it. The EU transactions have certainly raised global attention, but the impact on wider investor demand is probably not dramatic.”

However, Weyhausen-Brinkmann says KfW has seen some evidence of investor spill-over. “EU bonds are very liquid and make the entire SSA segment more attractive,” he notes. “Some investors that previously focused on government bonds are now looking at supranational and agency borrowers.”

While the impact so far has been positive, Dhawan says the EU’s peer group of issuers will need to make tactical adjustments to their market footprints as the EU becomes increasingly dominant in primary and secondary volume, and execution windows become more crowded.