Intesa Sanpaolo launched the first Italian bank deal since February today (Tuesday) as a surge of senior issuance persisted, and although a Westpac covered bond yesterday showed safe haven demand at tight levels, it was suggested a pricing floor for such assets may have been found.

Intesa Sanpaolo

Yesterday was the busiest day in the FIG new issue euro markets since the first quarter of the year, according to a syndicate banker, with three new senior unsecured benchmarks priced, and another trio of deals were launched this morning. Intesa Sanpaolo, ING and Raiffeisen Bank International (RBI) were in the market after deals for Danske Bank, Svenska Handelsbanken and Société Générale yesterday, alongside Westpac Banking Corporation in covered bonds. Re-offer spreads ranged from 60bp over mid-swaps for a Eu1.5bn three year for Svenska to 238bp over for a Eu750m 10 year tranche for Société Générale.

Intesa’s deal is the first Italian senior unsecured deal since February and “a milestone of sorts”, said a syndicate banker. It will price a Eu1bn three year deal at 410bp over mid-swaps and is expected to come with a 5% coupon.

Issuance of Italian covered bonds remains a remote prospect, however, according to the syndicate official.

“Outright spreads are too high for OBGs,” he said, adding that for investors a transaction offering a spread over Italian government bonds is a more attractive proposition than “engaging in a conversation” about an Italian covered bond that would come around to potentially significantly through BTPs.

“There are far more efficient uses of collateral,” he said.

RBS analysts said that an outstanding Intesa Sanpaolo November 2015 covered bond trades at 272bp over mid-swaps.

Australia’s Westpac priced the only covered bond deal of the week so far, with little sign of follow-up activity being prepared, according to syndicate bankers.

Westpac’s issue was priced at 55bp over mid-swaps, in line with guidance and initial price thoughts of the 55bp over area, after leads BNP Paribas, HSBC, UBS and Westpac built an order book of Eu1.2bn involving more than 63 accounts.

The re-offer spread is the tightest for an Australian benchmark covered bond following a rally of up to 50bp over the course of the year, according to a lead syndicate official, who said that some investors feel that a fair value level has now been reached.

Some syndicate bankers away from the deal saw the pricing as appropriate while others suggested the level was too tight.

“The deal worked, but it was a bit disappointing because it’s only their second issue and they are a good name,” said one. “ASB was also tight – they all want to come tight.”

New Zealand’s ASB Bank, a subsidiary of Commonwealth Bank of Australia, issued a tightly priced Eu500m five year deal via ASB Finance Limited last Tuesday (26 June) to make its euro benchmark debut.

Another syndicate banker on Westpac’s deal said that it was approached with a clear pricing target in mind and that this was reflected in the 55bp over level that was maintained from initial price thoughts through official guidance to final pricing.

He said the issuer viewed the deal as a positioning exercise and that execution was also mindful of investor feedback that transactions should be priced in line with where they are being marketed, and that Westpac wanted to avoid a “ratcheting in” of the spread.

“The issuer wanted to show that there is demand at a certain level for a safe haven jurisdiction, and I think they proved that on a day when there was a lot of higher beta traffic,” he said.

He said that the surge of senior unsecured deals is sensitising some types of investors to pricing.

“Some credit investors look at these Australian covered bonds and this flood of senior unsecured supply has people thinking about new issue premiums and about where fair value for the covereds should lie,” he said. “We are finding a floor in some of the safe haven jurisdictions in terms of pricing, especially when they’re out on a day where one senior deal after the next is hitting the market at a new issue premium of 25bp-35bp.”

He said that in his view Westpac’s deal was priced with the smallest differential to where a new seven year Nordic benchmark would on average come.

“We’re happy,” he said. “It wasn’t a bonanza at Eu1.2bn, but the book was of outstanding quality.”

Managed funds took 44%, banks 31%, agencies 13%, insurance companies 9%, and private banks 3%. Germany and Austria were allocated 37%, the UK 25%, Asia 15%, Switzerland 10%, France 5%, the Benelux 3%, and others 5%.