Market participants welcomed a diversity of covered bonds today (Tuesday) as three new issues from different jurisdictions hit the euro market alongside a second sterling deal, with a Nordea Bank Finland transaction standing out for being in high demand.

A long five year issue for Nordea is the first Finnish benchmark covered bond this year, with Deutsche Pfandbriefbank following in the footsteps of an Aareal Bank deal launched yesterday (Monday) to issue a four year mortgage Pfandbrief, and CM-CIC Home Loan SFH out with a 12 year obligation à l’habitat issue. RBS is selling a 12 year sterling deal.

“Market sentiment is still good and the primary pipeline is diversifying,” said a banker.
Another noted that while supply was becoming more diversified it still stemmed from core countries.

A portfolio manager said that the market was beginning to cool down, with issuance by high quality issuers giving way to second tier names. A Compagnie de Financement Foncier deal yesterday (Monday) was difficult, he said, although the situation today seemed better, with some of the deals going quite well.

“We have to expect more second tier names, which will slow down demand,” he said. “It won’t be such a joy-ride.”

However, he said that there was still capacity for deals to be absorbed and that “people have money”, but that name differentiation will be strong.

Other market participants felt the market was still in good shape.

“Liquidity is still about and there is no sign of investor fatigue on any of these transactions,” said one.

A syndicate official on Crédit Mutuel-CIC Home Loan SFH did not agree that the market is slowing down, adding that he was surprised about the size of the deal for CM-CIC.

“We’re getting close to Eu7bn of long dated French supply and there was no support from the ECB for this deal because it’s a 12 year, so it wasn’t clear we would get a jumbo size,” he said.

The deal size had not been fixed by the time The Covered Bond Report went to press, but demand for CM-CIC’s issue exceeded Eu1.3bn, with pricing fixed at 172bp over mid-swaps, the tight end of guidance of the 175bp over area.

CM-CIC’s 12 year issue is the first euro benchmark covered bond in the maturity this year, and is being lead managed by HSBC, JP Morgan, Société Générale and UBS.

A syndicate official away from the leads said it made a lot of sense for CM-CIC to look at a 12 year maturity given heavy supply in the 2022 maturity range, and another said that while the curve between 10 and 12 years was fairly flat for the credit, investors were able to gain 15bp in yield.

Nordea Bank Finland set the final spread on its bond at 65bp over mid-swaps after guidance of the 65bp-67bp over range, with leads Barclays, Bank of America Merrill Lynch, RBS and UniCredit closing books at 1115 CET. Around Eu3bn of orders were gathered, according to a syndicate official away from the leads.

“It is the best deal at the moment,” he said.

Another banker agreed that it had gone very well.

The Finnish bank could beat fellow Nordic issuer DNB Boligkreditt for the biggest order book of the year – more than Eu2.9bn orders were placed for DNB’s deal, a Eu2bn five-and-a-quarter year trade – with Nordea therefore appearing to have trumped this.

Deutsche Pfandbriefbank (pbb) is in the market with a Eu500m four year mortgage Pfandbrief that will be priced at 75bp over, the tight end of guidance of 75bp-80bp. It comes after Aareal Bank yesterday opened the Pfandbrief market in 2012 with a Eu500m four year mortgage backed issue.

Pbb leads BNP Paribas, Deutsche, Commerzbank and LBBW had built books above Eu400m by 1130 CET.

“I think they are trying to do Eu500m,” said a syndicate official away from the leads, “so they still have a bit more to do.”

Another syndicate official away from the leads said that pbb is a more difficult name than Aareal and that a higher spread reflected this. He said that the level should allow pbb’s deal to “cross the finish line”.

He put the new issue premium at around 15bp-20bp, based on an outstanding four year issue trading in the high 50s to low 60s, and an October 2016 issue around 65bp over.

Royal Bank of Scotland followed up on investor meetings carried out last week by launching a 12 year sterling covered bond. It is the second new issue in the currency this year, after Barclays Bank on Thursday sold a £1bn (Eu1.21bn) 10 year at 215bp over Gilts.

BNP Paribas, JP Morgan, Lloyds, RBC and RBS are marketing RBS’s sterling deal at the 275bp over Gilts area.

Market participants away from the leads were positive about the trade, with a portfolio manager saying he expected the deal to be supported by long end demand, adding that the level was arguably cheap compared with euros.

A syndicate official said that the deal looked sensibly priced.

“From what I hear, progress supports that view,” he said.