ASB Finance met with Eu750m of demand for its first euro benchmark today (Tuesday) to price it at the tight end of guidance, with a lead syndicate official highlighting the quality of the order book as others debated the pricing relative to the issuer’s parent and its New Zealand peers.

After publicly announcing a mandate for a five year deal yesterday (Monday) ASB Finance Limited this morning went out with a Eu500m maximum issue at guidance of the 70bp over mid-swaps area.

According to a syndicate banker on the deal leads Barclays, Commonwealth Bank of Australia (CBA) and UBS built a very high quality order book of Eu750m and will price the deal at 68bp over mid-swaps.

The deal was launched into a busy new issue market, which took in activity in senior unsecured financials and SSAs, although some syndicate bankers were not convinced that conditions were as conducive to new supply as the deal flow may have suggested.

One said that he was somewhat surprised by the level of primary market activity given the proximity of an EU summit, which starts on Thursday, and that it remained to be seen how today’s deals would fare.

Another syndicate banker said that the market backdrop is “brutal” and that as an issuer like ASB he would have waited for better market conditions to go out tighter.

“There’s a fair bit of concern ahead of the EU summit, and it’s not an obvious market backdrop to move into,” he said.

But another syndicate banker said that the broader market backdrop has been uneventful today, with trading fairly flat, and that the new issue market remains very well supported.

“There’s a very clear window here,” he said. “Any deal from a half decent issuer should go well.”

Several syndicate officials appeared pessimistic about the prospect of further benchmark covered bond supply, although The Covered Bond Report understands that, except for documentation issues related to a programme update, a mandated deal could yet emerge this week.

Some syndicate bankers away from the leads said ASB’s deal appeared to have gone slowly, but a syndicate official close to the transaction said that it was a success.

New Zealand covered bonds are not eligible for repo with the European Central Bank and are issued off contractual programmes, although legislation is being debated in the country’s parliament, and the syndicate banker said that these factors, in particular the latter, could deter some smaller accounts, with a coupon hovering around the 2% mark possibly another factor.

A syndicate banker away from the leads said that the spread on ASB’s deal – although generous compared with secondary market levels for a January 2017 euro benchmark issued by parent CBA – was less attractive relative to secondary market levels for outstanding benchmarks from other New Zealand banks.

He put ANZ National October 2016s at 63bp over, Westpac NZ June 2016s at 65bp over, and a BNZ November 2017 at 76bp over.

“It’s a good 30-ish back of the parent, but compared with New Zealand secondaries it doesn’t offer a huge amount of value,” he said.

Another syndicate banker said the spread on offer was effectively double that for CBA’s 2017s in the secondary market.

“It’s a hell of a spread to crystallise versus CBA,” he said.

Another said that ASB would probably have wanted to target a smaller spread relative to where its parent would come with a new issue, more like 20bp, rather than the high 20s to 30bp that he said it was offering via today’s deal.