Axa Bank Europe SCF tested whether a quiet, holiday affected market was receptive to issuance today (Tuesday) with a Eu1bn five year deal and attracted Eu1.2bn of orders. Meanwhile, Lloyds TSB tapped sterling and UBI Banca filed a second OBG programme.

The deal is Axa’s first euro benchmark since March 2011, when it sold a Eu500m five year obligations foncières issue at 63bp over mid-swaps.

Leads Barclays, BNP Paribas, Credit Agricole, Natixis, HSBC and Société Générale will price today’s five year at 70bp over mid-swaps, the tight end of guidance of 70bp-75bp over. This followed initial price thoughts of the 75bp over area in connection with the deal’s announcement yesterday (Monday).

A syndicate official at one of the leads said books were “comfortably oversubscribed”, with orders of Eu1.2bn.

He compared initial pricing with Axa’s most recent outstanding bond, its April 2016s, at 60bp mid and a November 2020 issue at 95bp.

A syndicate official away from the deal thought the issuer’s timing was not ideal because many market participants are away on holidays, but others were positive about Axa’s choice of timing.

One said that the issuer “played its card right”, coming in a week that many other issuers did not view as a good issuance opportunity, adding that some FIG issuers had tapped the senior unsecured market last week in an acceleration of issuance plans given that “no-one saw this [week] as a good opportunity”.

“With the ECB meeting, this will be the one and only story,” he said of Axa’s covered bond. “There doesn’t feel like much bandwidth apart from this, and from a market perspective this will be one of the quietest weeks.”

After several weeks of decent supply a slowdown of activity around the end of the quarter could be positive, he added.

Another syndicate banker also said he does not expect any more benchmark euro issuance this week, with a deal announcement this afternoon and launch tomorrow (Wednesday) morning the best way to proceed with any new issue should one be forthcoming.

He said that Axa’s deal “has exclusivity”, and that his bank had advised issuers to come this week but found no takers, citing blackouts and a belief in further spread tightening as some of the possible reasons.

Another syndicate banker said that Axa “hit the nail on the head” in terms of timing, noting that although many issuers are well on top of funding plans questions about the extent to which the extensive rally of the first quarter can continue could lure issuers to the market to take advantage of prevailing positive conditions.

Syndicate officials away from the deal expected it to be priced at the tight end of guidance. One said that pricing at 70bp over would be inside where a theoretical five year Axa bond would be quoted based on the issuer’s outstanding paper. A 3.625% April 2016 Axa issue is quoted at 64bp/51bp, he said, with the curve between three and five years very steep.

“It’s an awesome result,” he said, noting that the issuer is “not your standard French issuer”.

Axa’s covered bond is backed by a Belgian residential mortgage backed securitisation, but the SCF is an obligations foncières issuer under the relevant French legal framework.

The Belgian government bond curve have rallied more than other jurisdictions “given how wide it was”, said the syndicate banker.

Another syndicate official away from the leads put the April 2016s at around 60bp-61bp bid, and said that 70bp over for today’s deal is fair, though “not overly generous”.

At 75bp over, the pricing would have been too generous, he added, incorporating an excessive new issue premium of around 10bp, with a spread of 70bp offering a concession of around 4bp-5bp.

“I genuinely think there is a new issue premium,” he said, noting that supply in the senior unsecured market last week showed that “we’re back to a market where investors require a new issue premium to motivate them to come in”.

He acknowledged that the market is still a seller’s market, but said it is “not nearly as much” of a seller’s market as was the case several weeks ago.

Lloyds TSB today added £250m to a £750m three year floating rate note first sold on 22 March, at 165bp over three months sterling Libor.

The pricing was in line with initial guidance, according to a syndicate official at Lloyds TSB, the sole lead manager. He said that the trade was built around a number of specific reverse inquiries, meaning about eight or 10 investors had participated.

“The majority went to bank treasuries, and all of it went to the UK,” he said, adding that the total bond was capped at £1bn.

“It’s good that the covered bond business in the UK is starting to take off at long last,” he said. “We are seeing a broader spectrum of investors going in.

“It’s still specialized, but becoming less so.”

The syndicate official said the next step was for non-UK issuers to come to the market.

UBI Banca published a prospectus for a new Eu5bn covered bond programme today with a guarantor named UBI Finance CB2 SRL. The Italian bank already has a Eu15bn obbligazioni bancarie garantite (OBG) programme outstanding.

UBI Banca did not respond to enquiries about the purpose of the programme by the time The CBR went to press. The programme is being arranged by Barclays.

UBI Banca’s peer UniCredit in January established a second OBG programme to run alongside its outstanding issuance, with the new programme aimed at generating collateral for the repo market, ECB operations, or bilateral funding operations.