A busy senior unsecured market has been welcomed by bankers, with an Intesa Sanpaolo deal yesterday seen as “a great step forward” and a sign that the OBG market is open should issuers be willing, although expectations for covered bond supply this week were mixed.

No new benchmark covered bond supply has hit the market since last Wednesday, when Barclays Bank priced a Eu2bn five year trade that was last week’s sole benchmark euro issue.

Covered bond syndicate officials’ expectations for a resumption of supply this week were mixed this morning, with one sounding optimistic about the chances of some issuance tomorrow (Wednesday).

“I hope to get some positive news from issuers from core jurisdictions,” he said. “I would expect some supply when people come back from Karnival.”

Euro-zone finance ministers this morning agreed on a second bailout package of Greece, with a syndicate official saying that the market reaction has been indecisive, with equities slightly down, Spanish and Italian government bond spreads tighter, and credit indices a touch wider from yesterday’s close.

“In general it’s positive that something happened but it’s not quite what investors wanted to hear,” he said.

Another syndicate banker said that credit indices looked mixed this morning, with investors “buying the rumour, selling the news”, but that there is no reason to feel that deals could not be mandated for execution tomorrow.

Other syndicate bankers said they were not expecting much benchmark primary market activity this week, with one giving a lack of willing issuers as the main reason given an otherwise supportive market and another citing a covered bond conference in London on Thursday and Friday as likely to curtail activity.

The senior unsecured market was comparatively busy today, with three deals being launched after Italy’s Intesa Sanpaolo sold a Eu1bn five year trade yesterday (Monday). Danske Bank is out with a five year deal for which guidance was initially set at the 235bp over area, Abbey is selling an 18 month floating rate note for which initial pricing thoughts were at the 190bp over area, and Société Générale is marketing a dual tranche deal, split into an 18 month FRN and a five year fixed rate issue.

“The market from a primary standpoint is still on fire,” said a syndicate official, “and it’s not just covered bonds, but senior unsecured, SSAs – all avenues in terms of bank funding and general debt financing.”

He welcomed the senior unsecured supply for taking pressure off covered bonds, with spreads “grinding tighter” by the day, although volumes are lighter.

Another syndicate official focussed on the implications of Intesa Sanpaolo’s senior deal for Italian covered bond issuance, saying that it showed that the obbligazioni bancarie garantite market is open “despite no-one doing anything” and implied that the issuer would be able to sell a covered bond with a maturity longer than five years.

Intesa Sanpaolo

A banker at one of Intesa’s leads – Banca IMI, BNP Paribas, Credit Suisse, and JP Morgan – was positive about the significance of the bank’s deal for Italian covered bond issuance, calling it “a great step forward”.

He said that the transaction prompted some switches out of OBGs, with Italian senior unsecured paper offering a pick-up of up to 100bp.

“If you’re happy with Italian risk then it’s a bargain,” he said. “But if tomorrow a covered bond issuer in Italy feels like it wants to test the market it would be surprised by how people would react.

“The door is open, and now it’s a question of who is first.”

Intesa’s deal was priced at 335bp over mid-swaps. The deal was capped at Eu1bn from the outset, with a syndicate official at one of the leads saying that it could have been much larger.

Syndicate officials said that the Intesa senior transaction came at 70bp-80bp over BTPs, with one saying that this implied that an OBG in the five to seven year maturity range could come at between 10bp over to flat to Italian government bonds.

“It’s a good sign,” he said.

An Intesa Sanpaolo January 2021 OBG was trading at around 300bp over mid-swaps, with 10 year BTPs at around 290bp over, he added, which would make 310bp over a plausible starting point for a 10 year Intesa Sanpaolo OBG to then be priced flat to outstandings and with a small pick-up to BTPs.

But he said that while the Intesa deal is a positive signal and increases the prospects for OBG supply, pressure to issue remains low. In addition, issuers may be holding back from embarking on concrete new issue projects in anticipation of spreads tightening further, he said.

UniCredit is said to have no plans to issue covered bonds, while Intesa Sanpaolo has tapped the senior unsecured market twice in the three weeks, with yesterday’s deal coming after a Eu1.5bn 18 month FRN on 31 January. That was priced at 295bp over mid-swaps, and is said to now be trading in the low 220s over.

The syndicate official added that while smaller Italian issuers may be interested in coming to market, they may be less likely to emerge in the absence of a prior deal from either UniCredit or Intesa Sanpaolo.