The reason why fifth month in a year is called May is probably because of the weather conditions – it may rain, it may snow, and sometimes it may even be sunny… Sentiments on the bond market are changing in a lockstep – for instance, Slovenian bonds that were auctioned on a rainy April day were first showered by the dealers’ supply, going through spread widening in the process, but by now the sun is shining on them all over again because Slovenian banks have started to buy the paper for their own treasuries. What else can we learn from the recent bond placements? Find out in this brief article.

Recent weeks were marked by a heavy supply of European government bonds as countries use fixed income markets propped up by ECB’s PSPP/PEPP to access relatively cheap funding. Just last week Slovakia placed it’s largest syndicated deal ever through dual-tranche transaction, scooping up 4bn EUR in the process. The orderbook was equally split between the two bonds with 5Y SLOVGB receiving more than 7.6bn EUR of orders (210 accounts), while the 12Y orderbook landed north of 7.4bn EUR figure (250 accounts). Since 2bn EUR of each was issued, bid-to-cover could be calculated at 3.8x (5Y) and 3.6x (12Y). The real money orders were particularly heavy on this placement – about half of each paper was bought by fund managers, while central banks bought 20% of 5Y and 8% of the 12Y. Speaking about the pricing, IPTs were wired early in the morning at MS+75bps/MS+120bps (respectively), but naturally as the book was building the spread tightened to MS+65bps/MS+110bps. The interesting part is the grey market – the transactions settle today and the spreads have already tightened significantly to MS+37bps/MS+88bps, respectively.

Regarding the Slovenian bonds, the spreads have recently started to tighten, so for instance SLOREP 0.875 07/15/2030 is now traded @ Bund+129bps. This is still wider than the primary market, but at least this is comparable to Spain (MS+126.5bps); Portugal trades at Bund+137.1bps, so Slovenia comes in closer to Spain than to Portugal in terms of risk premium. Information from the market tells us that the dealers were left with significant inventory of SLOREP 2030 on their books after the primary market had ended, but most of the lead managers managed to get rid of the excess inventory. This might be the reason why last week we have seen unusually large buying orders on both of the SLOREP 30s (scarcity of the paper kicks in once the leads have emptied their inventories) and we assumed that local Slovenian banks are now starting to buy their own sovereign paper since it has substantially better fundamentals than Spain, coupled with significantly higher yield than Lithuania/Latvia/Slovakia (the two Baltic countries are traded at Bund+80bps, while the Slovak Republic is traded at Bund+115bps).

Also, it’s worth bearing in mind that last month the ECB bought about 93m EUR of Slovenian paper through PSPP facility (some 40m EUR below the monthly level implied by the capital key if we exclude the supranationals). In other words, once we exclude the supranationals, Slovenia is underbought – but on the other hand so are Lithuania, Latvia, Portugal and (probably) Slovakia. Last month the PSPP favoured Italy (6.3bn EUR of purchases above the capital key) and France (2.7bn EUR above the key). The average weighted maturity of the purchased Slovenian paper was 10.04 years, which almost perfectly fits the duration of the new SLOREP 2030. Still, the ECB buys a mix of durations, so don’t hold too tightly to this duration figure since you might be misled.

Finally, the Republic of Serbia placed it’s 7Y EUR paper on the market this Monday, after a short delay caused by the need to collect some of the key documentation. Once the orderbook was open early Monday morning, a couple of eyebrows were raised when IPTs arrived at buccaneering 3.875%! As the orderbook was getting filled, the intention of the leads became apparent: since Serbia is not purchased by the ECB, the first step would be to build the book, and the tightening of the spread came about later. Around 13.00 CET the first follow up crossed the wires and we learned that 2bn EUR is in the cards, the book was just barely south of the 5bn EUR mark and YTM is being indicated at 3.625%. Finally, the yield ended up at 3.375% once the 6.5bn EUR heavy orderbook was closed (3.25x bid-to-cover). It’s worth mentioning that Serbian Ministry of Finance planned a total fiscal stimulus in size of 5.1bn EUR for this year alone, meaning that this issuance covers about 40% of funding needs. Reoffer price of the issuance landed at 98.464 and as of this morning we see Street dealers paying as much as 100.25 (3.085% YTM) for the standard 1mm EUR lot. Interestingly enough, this is still above the SERBIA 2029’s yield, so at this moment the price on the 27s has still room to go up since it’s quite unlikely that this inversion would hold up since investors might be motivated to sell the 29s and buy the 27s, picking up extra premium and trimming down the duration.

Serbian paper was hence traded under the maxim “buy in May, before the price moves away“. Well, the price has moved far away and the remaining upside looks limited if you account for the bid-ask spread you have to pay to get in-get out. Nevertheless, other countries May be issuing in the remaining two weeks before the turn of the month. So watch out for the opportunities that May spring up on the bond market….