A strong start to the week that allowed Coventry Building Society to sell its first euro benchmark yesterday (Monday) subsided, partly due to German government officials dampening expectations about the immediate prospect for a solution to the euro-zone crisis.

Cited as also contributing to a muddled market tone were concerns about France’s sovereign rating, a general strike in Greece, and developments surrounding Portugal’s efforts to reduce its deficit.

Wolfgang Schäuble

“It hasn’t been taken particularly positively,” said a syndicate official, referring to comments from German finance minister Wolfgang Schäuble that played down the prospect of an EU summit this weekend delivering a definitive solution to the euro-zone sovereign debt crisis.

“Markets got a little ahead of themselves about what was going to come out of the weekend,” he added. “Now they realise it’s not all hunky-dory.”

Moody’s has said that it may change its outlook on France’s rating from stable to negative, and that French government metrics are among the weakest of its triple-A rated peers.

A syndicate banker said that in the absence of any tailwind, issuers were advised to lie low, but that he hoped markets would calm down to allow further supply this week.

A banker at one of the leads on a Coventry Building Society three year from yesterday said today was not the right day to emerge with any covered bonds.

“After the strong start yesterday coming on the back of the second covered bond purchase programme,” he said, “we’ve seen a complete reversal today, with a weaker market.

“The Coventry looks quite good now – that we were able to build on the momentum from yesterday to launch a deal.”

UniCredit Bank Austria is meeting investors in Scandinavia today and plans to launch a public sector benchmark tomorrow, market conditions allowing, a syndicate official at one of the leads told The Covered Bond Report. Danske Bank, DZ Bank, Erste Group, NordLB and UniCredit have the mandate.

An outstanding UniCredit Bank Austria June 2015 was said to be trading in the low 60s this morning and a May 2015 was trading at 57bp mid. A syndicate official away from the leads said UniCredit was “always tricky because you’ve got the Italian parent trading so much wider”.

He said the Austrian bank also struggles in terms of line availability.

“I think they will get Eu500m but not Eu1bn,” he added.

The issuer has launched two benchmarks so far this year, each for Eu1bn.

Coventry Building Society was able to benefit from a strong market opening yesterday to launch a Eu500m minimum three year Regulated Covered Bond, according to a syndicate official at one of its leads – Bank of America Merrill Lynch, Danske Bank, HSBC and Landesbank Baden-Württemberg.

He said that orders totalling Eu750m from more than 40 accounts were placed for the issue on the basis of initial price thoughts of the 130bp over area, which allowed the leads to price a Eu650m three year issue at 130bp over.

Kris Gozra

Kris Gozra, deputy treasurer at Coventry Building Society, said that the issuer achieved its goals.

“We are pleased to get the deal away with that size and at that level given market conditions that remain difficult despite some improvement,” he said, noting that much of recent benchmark supply has come from so-called national champions.

“We got the opportunity to upsize the deal because of the level of investor demand,” he added.

The pricing included a premium given that the trade was the issuer’s first in the euro market, according to Gozra, but he said that the issuer felt well received by investors when it went on a roadshow in September.

“People are impressed with Coventry’s performance,” he said. “We are the UK’s third largest building society, but first for performance metrics such as group management expenses and loans in arrears.”

Gozra said that the fall-out from yesterday afternoon’s negative turn of events did not have an impact on the building society’s transaction as the order book had been built before these emerged.

Nordic investors took 40% of the bonds, Germany and Austria 24%, the UK and Ireland 16%, and others 20%. Banks were allocated 41%, fund managers 33%, pension funds 9%, insurance companies 7%, central banks and agencies 7%, and others 3%.