Negative yields in the euro market, wider swap spreads and heavy redemptions have conspired to create perfect primary conditions for public sector dollar issuance, which has hit stratospheric levels in April.
The Asian Development Bank and Austria's Osterreichische Kontrollbank (OKB) led the way this week, taking dollar benchmark issuance by public sector issuers to US $38.9bn month-to-date according to IFR data.
With a week still to go, that is comfortably above the US $35bn raised in January - traditionally the busiest month of the year for the SSA sector.
"That's no laughing matter," said Kerr Finlayson, director of SSA debt syndicate at RBC, a bank that has been involved in some of the transactions.
"I would describe it as a perfect storm of factors - central banks have a lot of dollar reserves, bank treasuries are still hunting for Level 1 assets and the backdrop, relatively speaking in terms of swap spreads and yields, is attractive as well."
At the start of the year, swap spreads were negative from five-years out, and were close to flat at the shorter end.
That made longer end issuance difficult, and a touch tricky even at the front end too.
This week's ADB dual-tranche Global illustrated how far the trend has reversed. The Triple A rated supra hit the front and back ends of the market with two and 10-year benchmarks.
Orders for the two-year hit US $3.3bn despite no concession on offer and 10-year books crossed US $1.3bn, both excluding joint lead orders.
This allowed leads Bank of America Merrill Lynch, BNP Paribas, Goldman Sachs and Mizuho to print a US $2.5bn Apr 0.875% 2018 bond and a US $1bn 2% Apr 2026 note.
"It is unusual for both the two-year and the 10-year part of the market to be open at the same time," said a lead banker.
"There's huge pools of liquidity in the short end and 2%-plus yields are driving interest in the long end as well, especially now investors have reassessed how quickly rates are likely to rise."
The two-year sector remains popular, with KfW and World Bank taking US $6bn and US $5bn out of the market in the last two weeks.
Another illustration was OKB's triumphant return after a flaccid effort earlier in the year.
It struggled to sell a US $1bn five-year in January, but was overwhelmed with demand this time round and ended up printing its largest deal since the 2008 financial crisis, a US $2bn 1.125% three-year benchmark.
"It was a difficult start to the year for all SSA issuers and to come back with such a very heavily oversubscribed deal is very impressive," said a lead banker. "Understandably the world's reserve managers are focusing on dollars. What is the alternative when three-year euro paper trades at such negative yields?"
In January, the book for OKB's five-year was over US $500m at the last update. This time, indications of interest at the initial stages of marketing alone were in excess of US $2bn.
The final order book was over US $2.6bn, and the issuer chose to go with a US $2bn print.
"A large book can be a poisoned chalice because you don't want to disappoint a loyal investor base, so it was the right decision to print US $2bn," said the second lead. Barclays, Citigroup, J. P Morgan and RBC ran the trade.
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