Norway’s Terra BoligKreditt will today (Wednesday) price the first euro benchmark of the week after achieving smooth execution of a Eu500m five year issue. Meanwhile, the ECB has disclosed the biggest increase of settled purchases under its covered bond purchase programme so far.

Market participants said that the euro market continues to be supportive, although a syndicate official said that sentiment may have weakened somewhat.

“The market has continued to be constructive, although maybe a touch softer,” he said. “We could have expected something a lot worse after the downgrades, and that didn’t really happen.”

Another syndicate banker said that market participants seemed to be pushing aside questions about Greece.

Terra’s deal means that the public new issue pipeline for euro benchmarks is empty bar a mandate for SNS Bank and mandates that have been outstanding for more than two months. Market participants said there are few signs of imminent new issue projects, but that they expect benchmark supply to continue. Sparebanken Vest Boligkreditt is due to go on a roadshow next week, having mandated Commerzbank, DZ Bank, ING and Nordea Markets.

A syndicate official said that there are still some Scandinavian issuers that have not yet tapped that could come, and that he could imagine a German Pfandbrief emerging.

Another said that German, French and Spanish issuers are probably keeping an eye on the market.

“I think a Spanish deal could get done,” he said, “but the Italians are probably not quite ready.”

Terra BoligKreditt will today price a Eu500m five year issue at 73bp over mid-swaps, the tight end of guidance of the 75bp over area, which was subsequently revised to 73bp-75bp over.

Commerzbank, Nordea, UBS and UniCredit are the lead managers and gathered nearly Eu700m of orders before closing the order books at 1215 CET.

Syndicate officials away from the leads earlier this morning said they expected the trade to go well, and that the pricing seemed appropriate. They put the new issue premium at around 12bp-13bp.

“Terra is a very high quality issuer,” said one. “Scarcity is playing a role in this trade.”

Another said that it looked like a good transaction given that the issuer’s covered bonds are not rated triple-A and are not eligible for the ECB’s second covered bond purchase programme (CBPP2).

Moody’s rates the covered bonds Aa2, based on a Timely Payment Indicator (TPI) of “high” and an undisclosed issuer rating.

A syndicate banker on the deal said that the leads took a typical two-step approach of first taking indications of interest, based on initial pricing thoughts of the 75bp over area, before moving to formally open the order books on hour later.

“The deal got good traction and was quickly oversubscribed,” he said, adding that this and the Eu500m maximum deal size enabled the leads to tighten the pricing.

He said that the Aa2 rating of Terra’s covered bonds did not play a large role in the transaction.

A syndicate official away from the leads said it was positive to see a trade do so well after a deal from New Zealand’s BNZ failed to emerge yesterday. Lead managers on a mandated five year euro issuer for BNZ – DZ Bank, JP Morgan, NAB, Natixis, RBS, and UniCredit – started taking indications of interest on Monday, but a deal was not formally launched.

The issuer is understood to have decided against proceeding with a deal, with the absence of covered bond legislation in New Zealand, smaller credit line capacity and a lack of interest in supply from the country said to have been the main contributing factors rather than any resistance specific to the targeted pricing or to the issuer. The Reserve Bank of New Zealand in December published proposals for legislation, however.

Biggest CBPP2 increase so far

The European Central Bank today reported a Eu704m increase in settled purchases under its second covered bond purchase programme, by far the biggest rise since the scheme started.

The next biggest change in settled purchases was for Eu306m, disclosed on 22 November. Today’s figure takes the average daily buying to Eu89.72m, still far below an average daily amount of Eu160m that RBS analysts have calculated as being necessary for the Eu40bn allocated to the programme to be spent evenly until it ends in October.

The Eu704m increase is likely to reflect buying of two new French 10 year issues, for Caisse de Refinancement de l’Habitat and Crédit Agricole Home Loan SFH, and of a Nordea Bank Finland transaction, given that these deals settled yesterday (Tuesday).

Central banks bought 11% of a Eu2bn CRH deal priced on 3 January, 13% (with official institutions) of a Eu1.5bn Crédit Agricole sold a day later, and 24% of a Eu2.25bn Nordea Bank Finland five-and-a-half year new issue that was launched last Tuesday (10 January).

However, these figures do not necessarily solely capture buying under CBPP2.