EU HEALTHCARE: Sandoz Group AG: 2Q 25 (SDZSW; Baa2/BBB/NR)

• The OBR is due to release its "Fiscal Risks and Sustainability Report" at 9:30BST this morning.
• This looks very long-term and will provide updates on the long-term costs and effects of climate change, the public balance sheet and pension (including demographics, savings rates, structure of gilt market etc).
• The last update in September noted that public spending was predicted to rise from 45% of GDP to 60% of GDP over the next 50 years with revenues remaining at 40% of GDP. This would see debt/GDP at 274% in the baseline projection by the end of the forecast. It noted that "to return debt to its pre-pandemic levels would require an average fiscal tightening of 1.5 per cent of GDP per decade over the next 50 years."
• An update for the above will be watched by markets, as will the underlying assumptions - the most important of which is that of potential productivity which at present is 1.5%. The OBR notes that "every 0.1 per cent increase in productivity growth reducing the rise in the debt-to-GDP ratio by 25 percentage points. A full 1 percentage point increase, equivalent to a return to pre-financial crisis rates of productivity growth, could keep debt below 100 per cent of GDP throughout the next 50 years."
• On changes to productivity Citi note: "The OBR made downward revisions to near-term productivity but left medium-term productivity (at the 5yr horizon) at 1.25%. The OBR’s medium-term productivity assumptions have been sticky and gravitate towards the long-term baseline. Any change to the latter in today’s FRS could hint at a downward revision to productivity in the autumn, negatively impactive fiscal headroom. Every 0.1%point change is worth about £7-8bn of fiscal headroom. Even if the long-term baseline remains at 1.5%, that won’t rule out downward revisions to productivity in the autumn given the OBR has been consistently optimistic (noting the post-GFC average is around 0.5%)."

New 7-year Dec-32 EU-bond

• Size: E5bln (bottom of the E5-7bln range we expected)
• Books in excess of E62bln (inc E7.55bln JLM interest)
• Spread set: MS + 35bps (guidance was MS + 37bps area)
• Coupon: Short first coupon
• Maturity: 13 December 2032
• ISIN: EU000A4ED0K0

3.75% Oct-45 EU-bond tap:

• Size: E4bln up from original E3bln guidance (MNI expected E3-5bln)
• Books in excess of E72bln (inc E7.55bln JLM interest)
• Spread set: MS + 95bps (guidance was MS + 97bps area
• ISIN: EU000A4EA8Y7 (immediately fungible)

For both:

• Settlement: 15 July 2025 (T+5)
• JLMs: BNP Paribas, Citi, Deutsche Bank (DM/B&D), J.P. Morgan, Nomura
• Timing: Books to close at 9:45BST / 10:45CET

From market source