SNS Bank is pricing a Eu1bn five year covered bond today (Thursday), finally tapping the market after having mandated banks as long ago as December. Bankers said the timing reflected the market’s strength, but also that the new issue premium showed it was not getting carried away.

Leads DZ Bank, Natixis, Rabobank, RBS and UniCredit priced the Dutch regulated covered bond at 115bp over mid-swaps after building a book of more than Eu1.2bn with over 140 accounts. The final pricing was in line initial price thoughts of the 115bp area.

Syndicate officials away from the leads said that the deal had gone well.

“They mandated the deal long ago, then couldn’t get it away earlier this year – although they could have done something a couple of months ago and I don’t know why they didn’t,” said one. “There was then talk about them looking at alternatives like RMBS.

“But now was the right time to do a trade. There is no competing supply and they got Eu1bn done – when they had struggled to do Eu500m earlier this year.”

The pricing of 115bp over mid-swaps for the five year deal compares with 43bp over on an eight year deal for fellow Dutch issuer ING Bank on Monday.

“It sounds like they are paying up, but it is not the end of the world,” said the syndicate official.

He saw secondary SNS paper at 108bp/93bp, giving a new issue premium of roughly 10bp.

“There is quite a wide bid/offer, so if you take the bid side the premium is around 7bp-8bp but more like 15bp if you take the mid,” he said.

A covered bond analyst said that whereas the new issue premiums on ING’s Eu2bn deal and a Eu1bn five and a half year SpareBank 1 Boligkreditt issue on Monday had been tight from a historical perspective, SNS’s appeared attractive. He noted that in October 2009 SNS priced an October 2015 issue at 60bp over mid-swaps and in March 2010 a March 2017 at 70bp over.

Another syndicate official also put the new issue premium at around 10bp.

“It is not triple-A and bearing in mind that they have had some issues and needed to do a lot of groundwork,” he said, “the new issue premium was clearly needed even if the lack of supply has meant that other names have been able to get away with less”

He said that the higher premium paid by SNS than ING or SpareBank 1 showed that in spite of the rally the market was not getting too carried away.

“Investors are putting money to work,” he said, “but they are still differentiating between national champions and the second or third tier credits, which is a good thing.”

He also noted that the market had been a little softer yesterday, putting this down to some disappointment that Greece had not won significant concessions in its bid to have its bail-out terms eased.

“The German government put things into perspective,” he said. “It shows that political headline risk can come back quite quickly.”

He said that Italian and Spanish auctions in the coming weeks could provide further risks and that a key date would be 12 September when Germany’s constitutional court rules on the European Stability Mechanism, and others agreed, with one suggesting that issuers would want to tap the market before this as long as market conditions remain buoyant.

“The way things are going, the backdrop is not as red hot as it was, but in the primary market investors are sitting on so much money and there is still hardly any supply, so I expect some issuance next week,” he said.

Commonwealth Bank of Australia emerged with a sterling benchmark late this morning via CBA, RBC and RBS. The Australian issuer has gone out with guidance of the 120bp over Gilts area for a September 2026 maturity.

The deal is the first fixed rate benchmark in sterling for an Australian issuer, with only National Australia Bank having sold a £500m three year floating rate note, in January.

A syndicate official away from the leads said it made sense to bring foreign issuers to the sterling market given that a UK government Funding for Lending Scheme (FLS) is expected to reduce supply from UK covered bond issuers.

He said that the guidance of the 120bp over Gilts area looked fine in the context of Barclays January 2022 sterling covered bonds trading at around 120bp over Gilts, and with CBA and Barclays trading roughly flat to each other in the euro market, where both have 2022 benchmarks.

He said that against swaps CBAs level of 70bp over for its September 2026 was inside Barclays’ equivalent sterling swap level of the high 80s for its January 2022, but that although this was tight it was justified given the market dynamics and that the deal should go well.