Deutsche Pfandbriefbank and Raiffeisen Landesbank Steiermark were in the market with Eu500m minimum and Eu500m maximum deals, respectively, today (Wednesday) as syndicate officials urged caution in deal execution and in assessing the significance of the week’s supply.

Syndicate officials away from deals in the market today said some of the deals launched this week were not necessarily representative of the wider covered bond market, with German Pfandbriefe, for example, a challenging sell given comparatively tight trading levels and some deals, such as that for Austria’s Raiffeisen Landesbank Steiermark, having a strong regional focus.

One syndicate banker said that execution risk was “huge”, with the sovereign debt crisis remaining unresolved and any new covered bond purchase programme by the European Central Bank unlikely to have the same effect as in 2009-2010.

He said that deals needed to be approached very cautiously, and suggested that none of the new issues priced so far were particularly impressive. He noted that Crédit Mutuel Arkéa had orders from only around 30 investors for a Eu750m deal yesterday, and that a UniCredit Bank AG Eu500m mortgage Pfandbrief had been difficult (see separate stories for more).

Another syndicate banker said that prevailing market conditions were extremely challenging for investors, and that they were indicating that they need more clarity and/or new issue spreads “that give a real incentive to play in these deals”.

The deals launched so far had generally met with a weak reception and were “steps on the repricing ladder”, he said, and “not representative of anything remotely relevant”.

Raiffeisen Landesbank Steiermark was first out today, launching a Eu500m no-grow three year public sector backed covered bond (fundierte Bankschuldverschreibung) via leads Crédit Agricole, DZ Bank, Landesbank Baden-Württemberg and UniCredit. The deal is the issuer’s inaugural euro benchmark.

Initial price thoughts were in the high 50s over mid-swaps, with official guidance set at the 56bp over area. The leads had gathered around Eu600m of orders by the time The Covered Bond Report went to press, and were due to close the order books early afternoon. The re-offer level has been fixed at 55bp over mid-swaps.

A syndicate banker at one of the leads said that execution had been smooth and that although the issuer was not well known it was a “fine” name, part of the cooperative sector in Austria and offering pure Austrian risk. German and Austrian demand drove the transaction, with around 50 accounts in the order book so far, he said.

The new issue follows a roadshow carried out at the end of August, after which an official at the issuer had told The Covered Bond Report that it was aiming for a Eu500m issue.

Deutsche Pfandbriefbank (pbb) opened order books, after Raiffeisen Landesbank Steiermark, on a Eu500m minimum five year mortgage Pfandbrief that leads Citi, Commerzbank, Credit Suisse, Deutsche Bank and UniCredit are marketing at the 68bp over mid-swaps area. A syndicate official at one of the leads said that they took indications of interest earlier this morning on the basis of initial price thoughts of the mid to high 60s.

Syndicate officials away from the deal suggested it would be challenging given the credit quality of the issuer, with some also pointing to the tight trading levels of Pfandbriefe as making it difficult to attract demand for the product.

One syndicate banker away from the leads said earlier this morning that they were “chiselling away at pbb” and that he expected a Eu500m deal at the wide end of guidance, adding: “But I hope I’m wrong.”

Another said that he was surprised that the issuer went with a five year maturity, having thought it would opt for a three year.

However, syndicate officials suggested the outcome should be satisfactory as the issuer would otherwise not have proceeded with the new issue project.

A syndicate banker at one of the leads acknowledged that bookbuilding had been slow, but said that some larger accounts had been waiting for official guidance to be communicated and that feedback was coming through since that had happened.

“Investors are cautious,” he added.

The UK’s Lloyds TSB yesterday priced a Eu250m tap of a Eu750m January 2023 deal at 160bp over via JP Morgan, Lloyds and Natixis.

A syndicate official away from the leads said this was a good result given that it was re-offered only 10bp wider than where the initial issue was priced in January despite spreads having widened more than that.