A Eu1bn 10 year benchmark for Italy’s UniCredit showed covered bonds playing a strong role in getting bank funding flowing again this (Thursday) morning, while shorter dated deals for Eurohypo and UBS, and a dollar issue for Swedbank Mortgage, demonstrated broad support for the asset class.

Switzerland’s UBS is pricing a Eu1bn no-grow three and a half year deal, and Germany’s Eurohypo a Eu1bn two year mortgage Pfandbrief.

Syndicate bankers said they were encouraged by the strong activity, with one saying that it was positive to see the market opening up to issuance across the maturity curve and to a broad range of jurisdictions, including the periphery.

“It demonstrates that the pipeline that we thought was sizeable is not going to reduce, and that more issuance is possibly being pulled forward into August from September plans to take advantage of heightened levels of liquidity after the summer,” he said.

Another banker said that the market had proven much more accommodating on its reopening than some market participants had been expecting.

“Everyone was expecting a short dated deal from a German or Scandi issuer to reopen the market,” he said, “but it was a 10 year, and then you’ve got all these other things coming out like a 10 year OBG.

“It does show quite a strong reopening for the market.”

And while covered bonds have led the way, with senior unsecured issuance not showing any parallel revival, the reopening augurs well for bank funding in general, he added.

“When the UniCredit covered bond was announced, we did see some improvement in their senior unsecured levels of 10bp-15bp,” he said.

Another syndicate official said that he was “hugely” heartened by the supply in the market, and UniCredit’s transaction in particular.

The Eurohypo and UBS trades tended towards being defensive, while UniCredit’s move was more aggressive in the choice of maturity and pricing, he said.

“It’s a great statement for covered bonds, and it’s a great statement for peripherals,” he said.

Other bankers away from the UniCredit deal said that it was the most noteworthy deal today.

“I’m very interested myself in how this is going to work,” said one, “especially as this transaction has come more or less flat to BTPs.

“If this works then we might get a tier two Italian issuer coming to the market, but I’m not optimistic they could do this by next week.”

Another syndicate official away from the leads said it was too early to consider the door opening for second tier issuers out of Italy or Spain.

The Italian issuer was in the market with a 10 year obbligazioni bancarie garantite issue. Leads BNP Paribas, HSBC, Société Générale, UBS and UniCredit collected orders on the basis of guidance of 215bp-220bp over mid-swaps, a level that some syndicate officials away from the transaction said veered toward being aggressive.

“I would have given it a little bit wider,” said one, “but I’m sure these guys have done their homework and wouldn’t price it at that if they didn’t think it could sell.”

The leads stopped taking orders once the book reached Eu1.1bn, according to a syndicate official at one of the leads, with the issuer having targeted a Eu1bn size from the outset.

Other syndicate officials away from the deal said it was coming at a level roughly flat to Italian government bonds, although their assessment of the size of the new issue premium varied, with one putting it at 25bp-30bp and another at 10bp.

“So it’s relatively aggressive, also in relation to BTPs,” he said.

The flat nature of the BTP yield curve between three and 12 years was key to UniCredit’s decision to opt for a long dated deal, he suggested, as the issuer would have seen that it would need to pay the same spread whether for a short or long maturity.

A syndicate official at one of the leads put the pricing at “very flat to or through” BTPs, noting that Italian government bonds had tightened this morning by around 8bp. He said that the September 2021 BTP was at 217bp, while UniCredit’s 10 year is an October 2021 maturity.

“It’s certainly through where a new BTP would have to come,” he added.

He said that while some accounts had said that they would have preferred more of a spread over BTPs or a shorter maturity, enough were clearly happy with the pricing on offer given UniCredit’s diversified businesses and “very good rating insulation versus the sovereign”.

The syndicate banker added that it was interesting that an Italian covered bond had come ahead of a significant Italian government bond auction next Tuesday.

UniCredit’s deal is the first Italian benchmark covered bond in more than two months, after Credito Emiliano on 8 June sold a Eu500m three year at 140bp over mid-swaps.

UBS leads Bayerische Landesbank, Banco Bilbao Vizcaya Argentaria, Danske Bank, Deutsche Bank, Société Générale and UBS set initial guidance at the 30bp over area for a Eu1bn maximum three and a half year issue, and then revised twice, to 28bp-30bp and then 27bp-28bp. Some Eu2.5bn of orders were placed, according to a syndicate banker at one of the leads, and the deal is being priced at 27bp over.

“UBS is always a good name that doesn’t flood the market during the year,” said a syndicate official away from the leads, who said that he had expected the deal to sell comfortably

Syndicate bankers away from the leads put the new issue premium at about 7bp.

“UBS shows that for very, very good names in the right jurisdictions new issue premiums aren’t too far away from where they were in better times,” said one.

Eurohypo opened books this morning on a two year benchmark with leads Barclays, Commerzbank, DZ Bank, NordLB and UniCredit. Guidance was the 35bp over mid-swaps are and a Eu1bn issue is being priced at 35bp over.

“Eurohypo will get done and dusted no problem,” said a banker away from the leads.

A syndicate official away from the leads added that Eurohypo was in a relatively easy maturity.

“I would say it will run really smoothly,” he said. “We’ll see it mainly bought up by domestic investors.”

At least five covered bond issuers are on or will soon embark on roadshows. Austria’s Raiffeisen Landesbank Steiermark was due to start one today, having yesterday announced that it has mandated Crédit Agricole, DZ Bank, Landesbank Baden-Württemberg and UniCredit to lead manage a public sector backed benchmark.

Swedbank Mortgage yesterday priced the first US dollar benchmark covered bond since 26 July, a $1bn five year re-offered at 82bp over mid-swaps, equivalent to 113.9bp over the five year US Treasury.

Initial price talk was in the high 70s over mid-swaps, according to a syndicate official at one of the leads –Bank of America Merrill Lynch, Barclays Capital, Credit Suisse and JP Morgan.

He said that the issuer was able to obtain funding that was around 10bp cheaper than what would have been achievable in the euro benchmark market.