A “solid” 10 year deal for Belgium’s KBC and the second cédulas in two weeks for Bankinter made for another busy primary market in covered bonds today (Thursday) with a CFF tap, too, but expectations about demand may need to be reined in, said bankers.

The new supply is hitting a market that some syndicate bankers said seemed less amenable to issuance from core jurisdictions, especially after modest oversubscription for a Eu1bn 10 year Terra BoligKreditt deal and a Eu500m four year Deutsche Pfandbriefbank transaction from yesterday (Wednesday).

“There is a bit of fatigue in the market for tight spreads of core names,” said one.

Another said that market conditions this week have been weaker than in the previous ones, especially for strong names, and that “keeping on squeezing the spread” was not helpful.

“It’s not like investors are throwing demand at these trades,” he said.

Others also suggested that market dynamics had shifted and that expectations may need to be adjusted as a result.

“It doesn’t mean that markets turn for the worse,” said one, “but a more moderate path from here with very different demand and deal dynamics is probably what should be expected.”

Another syndicate official played down the idea of fatigue creeping into the market for core supply in the form of Pfandbriefe, for example, and said that there is scope for further Pfandbrief issuance to be well absorbed.

Bankinter is tapping the benchmark covered bond market for the second time in two weeks today, targeting the sale of a Eu500m five year no-grow cédulas hipotecarias after having on 10 January tapped the three year part of the curve for a deal of this size.

That issue was priced at 220bp over mid-swaps, and was trading around 205bp over bid this morning before the leads on Bankinter’s latest deal – Banco Santander, Bankinter, Citi, Commerzbank and Crédit Agricole – kicked off proceedings, said a lead syndicate banker.

The spread on Bankinter’s new issue has been fixed at 220bp over, in line with guidance of the 220bp over area.

The new issue is the sixth Spanish benchmark covered bond in two weeks, with Bankinter having sold the year’s first. Banco Santander launched the most recent cédulas, a Eu2bn five year that came at 195bp over but is said to have widened in the secondary market, with syndicate bankers attributing the underperformance to the deal being too large. It is the biggest deal to have been priced so far this year.

A syndicate banker at one of Bankinter’s leads said that some fatigue is creeping into the covered bond market after heavy financial institutions supply in general, not least in Spain, although appetite remains for cédulas.

“The market is still open, Bankinter is not a bad name, and the spread is more than fair,” he said. “It’s going very well although the type of dynamic we saw 10 days ago is over.”

New year peripheral covered bond supply has generally met with strong demand amid supportive market conditions as investors search for yield, leading to high levels of oversubscription.

A syndicate banker away from Bankinter’s deal said it was understandable that the issuer was coming to the market so quickly after its last covered bond given that some peripheral issuers will be “scarred” over fears about market access.

“I have no criticism about making hay while the sun shines,” he said.

KBC will today price its second benchmark covered bond, a Eu750m 10 year. Leads BNP Paribas, Commerzbank, Deutsche Bank and KBC set initial price thoughts in the 40bp over mid-swaps area, and refined this to guidance of the 38bp over area before fixing the reoffer spread at 36bp over. Orders were in excess of Eu1bn, according to a lead syndicate banker.

A syndicate banker away from the deal said that the leads had done “a good job in setting realistic initial pricing” and that the deal looked “a solid second transaction” after a Eu500m no-grow deal launched by Belfius Bank on Monday.

“It’s a solid transaction, but not a blow-out,” he said.

A lead syndicate official also used the term “solid” to describe the transaction. Another syndicate banker away from the deal said that the issue offered a limited issue premium, which did not make the transaction look appealing.

“Investors are beginning to ask for a little more in such a low yield market environment,” he said.

At 36bp over he saw the issue coming at similar levels through Belgian government bonds as did Belfius’s deal on Monday, at a spread of 15bp-17bp through. Another banker put June 2023 OLOs at around 59bp over, and noted that Belfius’s deal had performed “pretty well”, and was at 37bp over in the secondary market.

As with its inaugural covered bond deal, a Eu1.25bn five year transaction from 3 December, KBC today tapped the market again shortly after Belfius, choosing the same maturity as its peer.

A syndicate banker away from the leads noted that KBC priced its debut at 30bp over mid-swaps, some 10bp tighter than Belfius’s inaugural trade, which was priced at 45bp over. It was interesting to see how this time the two deals were coming at similar levels, he said, with Belfius having printed its Eu500m 10 year deal at 40bp over.

Syndicate bankers away from the leads said that KBC’s deal was received less enthusiastically than Belfius’s, with one noting that he found it strange that KBC’s offering appeared less attractive than Belfius’s as the issuer is higher rated.

“Belfius has been smarter in the way it tackled the market,” he said. “They picked better moments than KBC.”

Compagnie de Financement Foncier is adding Eu750m to a 2.375% November 2022 obligations foncières issue today, providing the first French benchmark covered bond supply since BPCE sold a Eu430m tap on 14 January.

CFF leads Barclays, BNP Paribas, JP Morgan, Natixis and RBS set guidance at 60bp over mid-swaps and will price the increase at 59bp over on the back of around Eu1bn of orders, according to a lead syndicate banker.

Some market participants said they understand CFF’s tap to be connected to changes made to the European Central Bank’s repo eligibility criteria in November, with one of the amendments concerning the repo eligibility of covered bonds backed by cover pools including external, non-intra-group asset backed securities.

According to RBS analysts, as a result of the change new issues of such covered bonds will from 31 March no longer be eligible as collateral for repo with the ECB, although a grandfathering period applies until 28 November 2014 for outstanding covered bonds.

However, taps of covered bonds featuring external RMBS as collateral and issued before 28 November, when the ECB amended its repo rules, will benefit from the grandfathering rule, according to the analysts.

“We contacted the ECB and they confirmed to us that tap issues of grandfathered covered bonds will remain eligible during the grandfathering period, as long as no additional ABSs, which do not comply with the additional eligibility criteria, are added to the cover pool,” they said. “This is good news for issuers such as CFF, CIF Euromortgage who will be able to tap existing issues instead of issuing new covered bonds until they have found sustainable solutions for the problems of external RMBS in their pools.”

Deutsche Pfandbriefbank (pbb) sold a Eu500m four year mortgage Pfandbrief at 8bp over mid-swaps yesterday. Leads Barclays, BNP Paribas, Commerzbank, NordLB and UniCredit built an order book of more than Eu550m, with 52 accounts participating.

Germany was allocated 75%, Italy 8%, Asia 7%, the Benelux 6%, Austria and Switzerland 2%, and others 2%. Funds took 51%, banks 37%, central banks 7%, and agencies 5%.

A lead syndicate official said the deal was fairly similar to several other benchmark Pfandbrief transactions that preceded pbb’s in recent weeks.

“It was a nice, smooth process,” he said. “It came flat to the mid curve and 5bp inside on the bid, so it’s a really good achievement.”