KBC broke Tier 2 records last week, printing the lowest coupon for this type of debt in the single currency, a transaction that encapsulated how low yields have fallen in recent weeks.
The Belgian lender, which was bringing its first benchmark Tier 2 since September 2017, priced the €750m 10-year non-call five with a 0.5% coupon, giving a yield of 0.616%.
There is no shortage of examples that show how low yields have fallen since the ECB suggested that it would restart its asset purchase programme and cut rates at its next meeting on September 12.
A €3bn five-year no-grow for the Republic of Finland was priced at an eye-watering –0.734% reoffer last Wednesday for example, setting a new milestone for the European syndicated sovereign market.
But while it is not surprising to see sovereign debt come at such lows anymore, subordinated bank debt is a new frontier.
It also shows how far the market has moved as it was priced at a lower coupon and yield than a €1.5bn 10-year covered bond issue for Credit Agricole in January. That deal carried a 1% coupon and 1.029% yield.
“Given where yields are, this is quite attractive,” a lead said. “We’ve not had much supply in Tier 2 and we’re not expecting given that banks that want to meet TLAC/MREL are opting for senior non-preferred.”
KBC was the first Tier 2 over €400m in size to emerge since a €1bn trade for BNP Paribas in June.
“It has full investment-grade ratings so for insurance companies in France, Germany and Holland, it’s one of the rare sub instruments that they can buy,” the lead said.
The transaction was launched at 110bp over mid-swaps, inside IPTs of 130bp, on more than €2bn of orders via leads Deutsche Bank, HSBC, JP Morgan, KBC, Morgan Stanley and Natixis.
At 110bp, the issue offered no new issue premium either and came a mere 50bp–60bp back of where a senior non-preferred would have come. That differential has shrunk by around 20bp since the start of the year, according to the lead manager.
The deal refinances a €750m 2.375% KBC Tier 2 coming up for call in November. KBC’s €500m 1.625% September 2029 non-call September 2024 Tier 2 was seen trading at 108bp.