A three year Royal Bank of Scotland deal was the pick of a crop of new issues in the euro benchmark covered bond market today (Wednesday), with Crédit Agricole Home Loan SFH and SpareBank 1 Boligkreditt also out. But concern about the impact of supply on secondary spreads is said to be mounting.

RBS has closed the order books on a three year UK Regulated Covered Bond launched this morning, with leads Banco Santander, BNP Paribas, Citi, RBS, UBS and UniCredit having gathered around Eu3bn of orders.

Initial price talk was in the 95bp-100bp over mid-swaps range, with guidance this morning set at the 95bp over area, which was in turn revised to 93bp-95bp over, according to a syndicate official away from the leads.

A Eu2bn issue will be priced at 93bp over, the tight end of guidance. The Eu3bn order book is the biggest for a new issue since the market reopened a week ago.

“RBS was a flyer this morning,” said a syndicate banker away from the leads. “Of the three trades in the market it seems to be the one to have blown the cover off the ball more than the others.”

He said that the pricing seemed fair, but pointed out that pricing thoughts had developed from the 95bp-100bp to 93bp-95bp range.

Another syndicate official away from the leads called it a “phenomenal” deal.

“I see it as having to pay about a 20bp new issue premium,” he added, “which is wider than Barclays, which paid 12bp on a three year benchmark yesterday.”

RBS’s benchmark followed a Eu2bn deal in the same maturity for fellow UK issuer Barclays Bank, which was priced at 52bp over mid-swaps yesterday (Tuesday) (see separate story).

Deals for France’s Crédit Agricole and Norway’s SpareBank 1 were also going well, said a banker away from the leads.

Crédit Agricole yesterday mandated Barclays Capital, Bayerische Landesbank, Deutsche Bank and DZ Bank to work alongside itself on a five year benchmark that was launched this morning.

“The deal is in good shape,” said a syndicate official at one of the leads mid-morning UK time.

Orders stood at around Eu1.25bn and the re-offer spread had been fixed at 78bp over, the middle of guidance of the 78bp over area, by the time The Covered Bond Report went to press. The leads were due to close the order books early afternoon.

Crédit Agricole’s deal is the first French standalone new issue, after Caisse de Refinancement de l’Habitat yesterday sold a Eu1.5bn 10 year at 85bp over. CRH issues on behalf of its member banks.

However, some bankers away from the leads were sceptical.

“The tougher deal is the Crédit Agricole,” said a syndicate official. “They refined guidance to 78bp and they started at mid-high 70s, so this is at the upper end of guidance.”

Another syndicate official away from the leads said the issuer had to pay a new issue premium of about 15bp-18bp.

“This is a concession, which is the highest we’ve seen out of a core jurisdiction, for a five year,” he said. “I think we were probably all a little nervous about what kind of spread it would take to get French issuers on the market.”

SpareBank 1 was also in the market this morning, offering investors an opportunity to participate in the first Norwegian euro benchmark covered bond since the beginning of June.

Leads BNP Paribas, Deutsche Bank, Nordea Markets and UniCredit went out with initial price thoughts of the low 60bps over mid-swaps, which a syndicate banker away from the deal said seemed an appropriate spread.

Another banker away from the leads called the spread “reasonably aggressive”.

“All the deals are building in the right new issue premiums,” he said.

But some investors are concerned with the way in which new issue concessions have influenced secondary market spreads.

A syndicate banker said that investors who tended to be more focussed on the secondary market felt that new issue premiums were disappearing into widening secondary market spreads, and were concerned that new issues would not perform on account of the amount of supply that has been hitting the market. The syndicate official said that although new supply was being priced “to be fair” and with appropriate new issue premiums, “most or all” new issues had failed to perform in the secondary market.

He attributed the widening movements in the secondary market to the high recent supply volumes and to defensive trading.

A portfolio manager yesterday said that new issue premiums were leading to a widening of spreads on comparable outstanding bonds in the secondary market, and another investor today described the situation similarly.

Pricing of 80bp over on a Eu1.75bn 10 year ING Bank deal that reopened the benchmark market last Wednesday (24 September) included a “scary” new issue premium of 20bp, he said, wondering why a core name such as ING would have to offer such a top-up – although several other market participants put the Dutch bank’s new issue premium at a lower figure, 15bp.

He said that he was able to sell a June 2013 RBS issue at 34bp over yesterday before he knew of the bank’s benchmark, and then at 39bp, with the bond quoted at 45bp-60bp following the announcement of the bank’s new deal. A 2015 bond had moved from 100bp to 115bp over, he added.

Secondary market spreads were widening by around 70%-80% of new issue premiums, he said.

“How long can this continue with wide primary issues?” he asked. “All the curves are going wider.”

He said that he saw a new issue premium of around 15bp-20bp attached to today’s RBS deal.

Danske Bank yesterday sold a Dkr2bn (Eu268m) three year covered bond out of its ‘C’ cover pool, which contains Norwegian and Swedish commercial mortgages. The issue was priced at par, and came with a coupon of 1.957%.

The bank also sold a Dkr1bn five year floating rate note out of its ‘D’ cover pool, which contains Danish prime residential mortgages. The issue pays a coupon of 37bp over three months Cibor. SEB managed the sale of the bonds.