WASHINGTON — The World Bank’s benchmark bond that supports the financing of sustainable development projects in member countries was set Wednesday at its tightest spread to U.S. treasuries in the international organization’s history.
The global lending organization priced a US$3.5 billion, five-year global benchmark bond with the narrowest ever spread to U.S. treasuries as investors sought safety amid high tensions between the U.S. and Iran. Spread tightening means borrowers pay lower premiums over government rates.
The five-year benchmark matures on January 15, 2025. It was priced at just 7.57 basis points over the 1.75 percent reference bond due December 31, 2024, offering investors a yield of 1.723 percent, the World Bank said in a statement.
“The offering was welcomed by a diverse group of investors across the globe, and demonstrates the value placed on the World Bank’s sustainable development mission — to end extreme poverty and promote shared prosperity in our member countries,” said Jingdong Hua, the World Bank’s vice president and treasurer.
Strong investor demand for the World Bank’s benchmark bond led to an order book that reached US$4.8 billion, with over 110 orders from investors around the world. The robust interest in such bonds, seen increasingly as a haven like U.S. treasuries, shows the rising importance of global organizations.
“In a volatile, headline-driven market, the World Bank credit quality shines,” said Sean Hayes, managing director and head of U.S. Syndicate at BMO Capital Markets in New York.
More than 100 participating investors, he said, paved the way to “the tightest ever five-year bond versus U.S. Treasuries” that the U.S. dollar primary market for supranationals and agencies has ever seen.
Inclusiveness may be the only way to achieve #growth today, in developed and developing economies alike. Read the latest blog by @WorldBank Chief Economist @Penny_WB: https://t.co/YHBSxcb027
— World Bank (@WorldBank) January 6, 2020
Volatile markets
Though tensions between the Iran and the United States appeared to ease on Thursday, investors were on edge as Iran’s President Hassan Rouhani warned of a “very dangerous response” if the U.S. makes “another mistake” such as the drone strike that killed Gen. Qassem Soleimani, a top commander in Iraq.
Both sides stepped back from the brink of a wider military confrontation after Iran’s retaliatory launch of ballistic missiles at two military bases in Iraq that house American troops. No casualties were reported. Rouhani called its reaction an act of self-defense allowable under the United Nations Charter.
Despite the U.S.-Iran standoff in the Middle East, participating investors in the World Bank’s benchmark bond were distributed roughly equally around the globe, with Europe and the Middle East accounting for 40 percent, Asia 36 percent, and the Americas 29 percent.
Private banks accounted for about 41 percent of the investors, followed by government-run central banks at 39 percent, and investment funds, insurers, and pension funds at 20 percent.
The Washington-based World Bank and International Monetary Fund are so-called “Bretton Woods” institutions, because they were set up to rebuild postwar Europe and promote international cooperation at a U.S.-led meeting of 43 nations at Bretton Woods, New Hampshire in July 1944.
Since that time, and especially in the 21st century, their missions have shifted to focus more on development and poverty, in line with the United Nations’ 17 anti-poverty Sustainable Development Goals for 2030.
“The World Bank has proven its exceptional standing in global capital markets, attracting the highest quality demand in a market environment characterized by increased volatility and uncertainty from geopolitical headlines,” said Paul Eustace, managing director and head of EMEA Syndicate at TD Securities in London.
BMO Capital, Citi, J.P. Morgan and TD Securities are joint lead managers for the transaction.
