Abbey National Treasury Services and BPCE got benchmark covered bonds away yesterday (Thursday) despite coming at the end of some Eu20bn of issuance, but the heavy supply and busy pipeline was taking its toll today, with secondary spreads under pressure.

The surge in covered bond issuance has come against a backdrop of record spreads on senior unsecured paper, where the market has remained shut.

“Spreads are too tight in my opinion given how much senior has widened,” said a syndicate official. “There is also lots of covered bond supply and deals are not very oversubscribed.”

Market participants had this week been warning that the pace of issuance was unsustainable.

However, those involved in yesterday’s deals said that such pressures did not knock the UK and French issuers off course.

“If you look at Wednesday,” he said, “there was a lot of talk about market fatigue but yesterday doesn’t show that.

“We’ve seen a lot of different deals, which have been bought up with many different types of investors, so what this really shows is that is a really strong market in horrific conditions.”

Santander offices, London

Abbey was the third UK issuer to come to the market over a three consecutive day span, starting with Barclays on Tuesday and then RBS on Wednesday.

Leads Banco Santander, Barclays Capital, BNP Paribas, Danske Bank, Natixis and Royal Bank of Scotland fixed pricing for a Eu1bn deal at 150bp over mid-swaps, in the middle of initial guidance. Syndicate officials at the leads said demand in the Eu1.2bn book was high quality.

“It was an outstanding quality of book,” said a syndicate official at one of the leads. “We were all quite surprised by the quality of the book after seeing such concentrated supply in the market.”

A syndicate official at one of the other leads said the pricing was fair in the context of recent supply. Another questioned the value of the discussions about new issue premiums there have been amid the recently supply.

“If you look at the moves in sovereigns or in senior unsecured,” he said, “these bizarre discussions around new issue premiums seem to be very misguided.

“The questions are not relevant, especially when seeing such high unsecured levels and sovereigns.”

Yesterday bankers away from the leads raised concerns about Abbey’s connection with Santander possibly having an impact on the deal. The lead syndicate banker said it did not affect the deal itself, but rather affects where Abbey trades in general.

“The link does play a role,” he said, adding: “If you look at Abbey on a CDS basis, it does trade tighter than Barclays or Lloyds, but their covered bonds trade wider.”

The UK took 28%, Germany 15%, the Nordics 13%, the Benelux 3%, and others 2%. Banks took 46%, asset managers 37%, central banks 11%, agencies 2%, and supranationals 2%.

BPCE SFH sold a Eu1.25bn 10 year obligations de financement de l’habitat transaction via BNP Paribas, Citi, Commerzbank, Lloyds, Natixis and NordLB. The leads set initial guidance at 100bp-105bp before fixing pricing at 100bp.

A syndicate official at one of the leads said the leads used the fairly flat BPCE curve, which includes a five year at 72bp, to set initial pricing. Books were closed at 1300 CET with Eu1.7bn in orders from 62 accounts.

“BPCE was very well bought up by central banks and insurance companies,” said the syndicate official.

Insurance companies and pension funds took 60%, asset managers 14%, banks and savings banks 7%, public institutions 18%, and others 1%. France took 49%, Germany/Austria 25%, Asia 12%, UK 8%, Benelux 5%, other 1%.

Several issuers have been on roadshows and could now be nearing new issues.

Among them is Raiffeisen Landesbank Steiermark, which finished a roadshow on Wednesday evening, during which it received positive feedback, according to Stefan Dahm, head of capital markets at the Austrian bank. He told The Covered Bond Report that the issuer is aiming for a Eu500m issue.

“A few years ago investors would have seen the regional focus of the assets in our cover pool as insufficiently geographically diversified, but our feeling after the roadshow is that investors are looking for that regional concentration according to our business model and simple structure,” said Dahm. “Austrian issuers are also interesting for investors because Austria is one of few countries with an undisputed triple-A rating.”

Public sector covered bonds to be issued by Raiffeisen Landesbank Steiermark, which are backed solely by Austrian assets, received a definitive triple-A rating from Moody’s on Tuesday. Dahm said yesterday (Thursday) that the issuer was going to discuss the outcome of the roadshow with the syndicate group and aim to decide on a maturity and consider pricing ideas.

“If there are no exogenous market problems then we hope to come to the market relatively quickly, perhaps already next week,” he said.

Crédit Agricole, DZ Bank, Landesbank Baden-Württemberg and UniCredit have the mandate.

Other names cited by market participants as potential issuers, alongside those that have formally announced roadshows, include Deutsche Pfandbriefbank and Intesa Sanpaolo. Canada’s CCDJ has a European roadshow, but this was described by one banker as being non-deal related.

New Zealand’s ASB Bank has published a prospectus for a Eu7bn covered bond programme, arranged by Barclays Capital and the bank itself. The Commonwealth Bank of Australia (CBA) subsidiary will issue via ASB Finance Limited.

According to the prospectus, dated yesterday, the covered bonds are expected to be rated triple-A by Fitch and Moody’s.