Tuesday, 17 July 2018

Investors snap up third week of covereds

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There was little sign of investor appetite for euro covered paper abating on Tuesday, although enthusiasm for Canadian sterling floaters could be flagging.

Two of Tuesday’s four deals were offered by Canadian issuers, which have already printed seven euro deals worth a combined €8.25bn this year.

In the euro market, Bank of Montreal began marketing a five-year at 10bp area over swaps, having printed €1.5bn in that format in January.

Guidance followed at plus 8bp area via Barclays, BMO, Deutsche Bank and HSBC. The spread was fixed at plus 7bp over swaps, in line with other recent five-years from Bank of Nova Scotia, Lloyds and Nationwide.

One banker flagged the potential for investor fatigue around Canadian covereds.

“They have done a lot in Europe this year. They tend to avoid the US dollar covered market as they think it will cannibalise their dollar unsecured funding. Perhaps there is starting to be some investor fatigue when it comes to Canadian covered bonds.”

He pointed out that Toronto Dominion’s €1.25bn five-year has widened by around 7bp since pricing at 1bp through swaps in June, although the sector has seen a more general widening.

But BMO had no problem raking in orders, which neared €2bn as the spread was fixed.

Updates were, as usual, much slower to emerge for Bank of Nova Scotia’s three-year sterling FRN, a sector that has also widened after four such Canadian deals in 2015.

CIBC’s £500m deal from January, for example, is around 6bp wider than its pricing level of Libor plus 19bp.

BNS set IPTs at 28bp over three-month Libor, in line with where Royal Bank of Canada priced a £400m trade two weeks ago. It is still bid at that level, according to Tradeweb prices.

“I can’t see how they’d tighten it,” said a banker away from the trade. “As more and more three-year FRNs get printed, they seem to be getting a little wider and books get smaller in size.”

Deutsche Bank, Scotiabank and UBS are joint leads.

Business as usual

Bankia, meanwhile, found solid demand for a seven-year covered. Books were approaching €2bn as the spread was fixed at swaps plus 45bp via Bankia, Barclays, Commerzbank, HSBC and Societe Generale. Guidance had been plus 47bp area (+/–2bp, wpir) after IPTs of plus low 50s

“It looked pretty cheap when it came out, around a 20bp–25bp NIP, but it’s a longer tenor and significantly through Spain, around 30bp, which may be a reason for that cheapness. It should fly out of the door,” said the second banker.

Italy’s Banca Popolare dell’Emilia Romagna printed a €750m five-year last week. A lead said it paid one of the week’s higher NIPs to account for pricing roughly 25bp through the sovereign.

LBBW is in the process of wrapping up a public sector covered bond just two weeks after reopening the market with a €1bn five-year mortgage deal.

IPTs on the €500m no-grow seven-year came at 12bp area through swaps and guidance followed at minus 15bp area (+/–1bp) on books of over €1.2bn. It will price at the tight end. 

ABN AMRO, LBBW, Societe Generale and UBS are joint leads.

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