UniCredit reopened the peripheral covered bond markets with a six times oversubscribed Eu1bn seven year OBG today (Monday) and bankers said the positive outcome was not surprising given the combination of an excess of liquidity in the market and a strong Italian name.

Leads Banca IMI, Lloyds, Natixis, RBS and UniCredit collected over Eu6bn of orders in less than an hour for the Eu1bn no-grow trade, and tightened the spread from IPTs of 160bp-165bp over mid-swaps.

Guidance was revised from 160bp to 155bp as a result of the overwhelming demand, said a syndicate banker away from the leads, and the final spread was fixed at 150bp over.

“Looking at where the secondaries are, and how the market is, I’m not surprised by the reaction,” said another.

Market participants said that a general lack of supply in the market drove investors towards the strong Italian name.

“If you look at the market, there is not much supply,” said one. “There is UniCredit, and that’s it.”

UniCredit’s deal is only the second benchmark covered bond of the year, after CRH sold a Eu1bn 12 year deal on Friday (see separate article here).

Some bankers said that given the risk-on sentiment in the market, IPTs could have been tighter, for example starting at 155bp over mid-swaps, but agreed that the final pricing was appropriate.

“I think the overall strategy was actually right,” said a syndicate banker away from the leads. “You start with a level that looks a little bit generous in respect to secondaries, you get the momentum and then you price it at the tighter end.

“At the end they achieved the right pricing,” he added.

Regarding comparables, he cited UniCredit July 2018s quoted at around 145bp over mid swaps, he said made the new trade’s pricing at 150bp “absolutely right”.

UniCredit’s OBGs were priced at 90bp through Italian government bonds, said the syndicate banker, adding that this was not surprising considering other recent deals by the issuer, such as a Eu250m tap launched on 17 October that was priced at 80bp inside BTPs, and the favourable market conditions.

“BBVA’s five year senior unsecured trade came about 15bp-20bp through govvies last week,” he noted. “If a senior unsecured from a peripheral country comes at 15bp through govvies, and then a covered bond comes 90bp through, it doesn’t sound horrible.”

The deal also seemed to confirm the trend of OBGs being priced inside the Italian sovereign curve started last year, said bankers. An Intesa Sanpaolo Eu1.25bn 10 year was priced at around 100bp through BTPs on 22 November, as was a UniCredit Eu750m five year on 14 August.

According to a syndicate banker away from the leads, the good market conditions allowed UniCredit to opt for any maturity, and the choice of a seven year reflected the issuer’s decision to achieve a good match for its cover pool. Another noted that UniCredit does not have any 2020 deals outstanding, so a seven year deal would fit nicely into its curve.

The deal represented a good opening for the peripherals and others may follow soon, said a syndicate banker, adding that they may now opt for longer dated deals instead of typically easier shorter ones.

“I think it makes complete sense for the peripherals to take advantages of the market right now,” he said.