January is typically a very busy month for European sovereign issuance as national treasuries kick off their annual funding programmes. This year has seen a marked uptick in supply relative to the previous year as issuers have taken advantage of low borrowing costs to front-load their issuance. Cumulative EGB supply during the first two weeks of January is 17% higher than over the same period in 2019, despite full-year borrowing targets being broadly lower across the euro area.

What has been particularly noteworthy is the scale of demand, particularly for syndications of new issues. Syndications offer a way for investors to buy in larger volume than is the case at normal regular auctions. Spain sold €10bln of a new 10-year bond, with an order book that exceeded €52bln; the largest ever for a European issuer. Similarly, Italy auctioned a new 30-year BTP, raising €7bln with an order book in excess of €48bln. While there is clearly strong demand for low-yielding EGBs, front-loaded issuance could result in weaker supply later in the year and underpin a bear steepening of euro sovereign curves.

Source: Bloomberg, Macrobond and Variant Perception