Austria’s HYPO NOE made the most of what may very well be the week’s only issuance opportunity, today (Wednesday), launching a convincing Eu500m no-grow 10 year public sector Pfandbrief that was three times oversubscribed and priced some 7bp inside initial guidance.

The issuer took advantage of what is widely expected to be the only issuance window this week, before the benchmark primary market shuts down again on account of a Spanish government bond auction and an ECB meeting tomorrow (Thursday) and release of US non-farm payrolls on Friday.

A long dated French tap has been rumoured, with Caisse de Refinancement de l’Habitat mentioned in this context, but one syndicate banker said he would be surprised to see any French covered bond supply before the second round of the country’s presidential elections on Sunday.

Good overnight equity sessions across the board and a supportive tone at the opening of European markets prompted the HYPO NOE Gruppe Bank leads – Crédit Agricole, DZ Bank, Erste Group Bank, HSBC, and UniCredit – to proceed with deal execution early this morning, according to a syndicate official on the deal.

“Given the very short time frame at our disposal, timing and capacity in anticipation were key in the process,” he said. “With so many potential market movers ahead of us it was decisive to catch today’s issuance window.”

The leads started by taking indications of interest on the basis of initial price thoughts of the mid-90s, and then set official guidance at 90bp-95bp. This was later revised to the 90bp over area, by which time orders had passed Eu1bn.

The order books were closed with some Eu1.5bn of demand pre-reconciliation, and the re-offer spread has been fixed at 88bp over mid-swaps. Some 100 accounts participated in the deal.

A seven year maturity had previously been mentioned in connection with an Austrian benchmark expected to be launched this week, and a lead syndicate official said this had been under consideration alongside a 10 year deal. However, Germany’s FMS Wertmanagement is out with a seven year transaction, and with today likely to be the only day for new issuance this week, a different maturity for HYPO NOE’s covered bond was helpful even though the FMS deal is of “a different spread paradigm”, he said.

Another syndicate banker said the issuer had clearly indicated a preference for a 10 year deal, and that a seven year new issue would have been a defensive move, and that this was not necessary.

Syndicate officials away from the deal said it had gone well, with one describing the pricing as fair compared with the national champions. Another said the transaction turned out to be a blowout, with pricing at 88bp over tighter than what he would have expected, namely a spread in the 90bp-95bp range.

HYPO NOE has two euro benchmark covered bonds outstanding, according to DZ analysts, a November 2013 Eu500m issue and an October 2014 deal, also for Eu500m.

HYPO NOE’s outstanding benchmark covered bonds were not taken as relevant comparables because they are short dated, according to one of the lead syndicate officials, who said that initial pricing thoughts of the mid 90s for 10 years reflected fair value at the early stage of the marketing process.

Pricing thoughts were in line with comparables and recently launched Austrian Pfandbriefe, he added, with a Unicredit Bank Austria April 2019 issue from the middle of April, for example, at around 78bp over bid in the secondary market before HYPO NOE’s deal was announced.

Another lead syndicate official said that pricing at 88bp did not offer “much above fair value”, but that the move from 95bp over was justified given a very impressive process, with the level of demand a function of a very undersupplied market.

Syndicate officials put an Erste Group Bank February 2022 mortgage backed deal in the 80s.

A lead syndicate official said the level of demand registered for HYPO NOE’s deal was not surprising, noting a high quality cover pool comprising 99% Austrian public sector assets, as well as a strong ownership structure, and strong resilience demonstrated by Austrian Pfandbrief spreads during recent phases of volatility and widening.