Supply-starved investors were finally delivered their fill of covered bonds on Wednesday, as issuers took confidence from Caffil's recent trade to bringing a spectrum of paper including the first US dollar covered of the year.
Before Wednesday's deals only two euro benchmark covereds had been issued since the turn of the year, a €500m seven-year from Aareal Bank on January 5 and a €1.5bn long 10-year from Caffil on Monday.
Covered bond issuance has fallen below the historical average in recent months, as banks turn instead for funding from cheap central bank loans. The strong book for Caffil's deal, however, had given confidence to the market, bankers said.
"Some of these issuers were already eyeing the market at the end of last year but December was not particularly the best month," said a banker. "The Caffil trade with its book peaking above €3bn showed issuers that there is a very strong bid for covereds."
Mediobanca achieved a couple of notable highlights with its first mortgage-backed OBG since June 2019, despite having to brave a backdrop of political instability in the market.
"It is the first ever Italian covered bond with a negative yield [at pricing] and also the lowest spread paid by Mediobanca on a covered bond," a lead manager said. "It was a great achievement despite all the political noise, yesterday BTPs widened by about 10bp, it is a bit more stable today."
Italy's government was hanging by a thread on Wednesday ahead of a news conference by former Prime Minister Matteo Renzi who has threatened to pull his tiny centrist party out of the ruling coalition, triggering its collapse.
Commerzbank, IMI, Mediobanca, Natixis and RBI opened books for Mediobanca's 10-year mortgage-backed OBG at plus 17bp area. With books closing around €1.3bn, Mediobanca was able to print a €750m note at 13bp, with a reoffer yield of -0.077% and around 70bp inside BTPs.
In spread terms, bankers away estimated fair value was in the low 10s. Leads had seen Mediobanca's November 2029s at 9bp.
The lead manager attributed the trade's appeal to the rarity of the issuer's name in the format and a lack of OBG supply.
UniCredit Bank AG (HVB) launched a €500m 15-year Hypothekenpfandbrief that bankers said priced 0.5bp-1bp through fair value.
BayernLB, Credit Agricole, Deka, Erste and UniCredit began marketing at mid-swaps plus 7bp area for the no-grow trade and were able to tighten the final spread to plus 3bp as orders surged past €2.1bn. The reoffer yield was 0.013%.
"To me it makes sense that a name like that delivers in the very long end," a banker away from the trade said.
"Insurers and pension funds still have needs to lock in levels that are with minimally negative or even slightly positive yields. It looked like it was bang on the money from where I'm sitting."
OUTSIDE THE FLOW
Jyske Realkredit also managed to price through the curve, selling a €500m October 2027 mortgage backed bond with a negative new issue concession of 1bp.
"It is definitely nice to see something that isn't directly supported by the eurosystem," said a banker away.
"The effects from within the eurozone are spilling over to the rest of the world and everyone stands a good chance of profiting from the fact that spreads are disappearing in the ECB zone. The game remains pretty much in the hand of issuers. Good for them, bad for investors."
BNP Paribas, Danske Bank, Deka and Swedbank marketed Jyske's long six-year at plus 10bp area for a no-grow trade. The Danish bank saw orders peak at over €2bn and was able to print at a spread of plus 6bp.
"They have a strategy of diversification to do the occasional euro to the tune of one a year, but didn't do one last year," a lead manager said.
"The market is very receptive to supply, and the covered bond space this year has left the floor open for rare issuers like Jyske to get proper attention."
The session also witnessed Komercni banka receive more than €1.5bn of demand for an inaugural €500m five-year mortgage-backed bond that came at mid-swaps plus 12bp, following a 6bp compression during price talk.
This was first syndicated international covered bond issue to come out of the Czech Republic since 2016 and it was arranged through Societe Generale, Barclays and JP Morgan.
Looking ahead, DNB Boligkreditt gearing up for the launch of a euro 10-year green covered benchmark via BNP Paribas, DNB, ING, LBBW and Societe Generale.
Away from the single-currency, Deutsche Pfandbriefbank sold the first dollar-denominated covered bond of the year on Wednesday.
Arranged through Citigroup, Credit Suisse, Goldman Sachs and NatWest Markets, the US$750m three-year Hypothekenpfandbrief priced 3bp tighter than guidance at mid-swaps plus 23bp and drew over $1.25bn in orders.