The euro debt capital markets were quiet this (Monday) morning, but covered bond issuers such as Kommunalkredit Austria have finished roadshows, and syndicate bankers are firmly expecting new supply before a keenly anticipated Fed press conference on Wednesday.

Larry Summers

The benchmark covered bond market has had a bit of a breather, with only one issue priced last week, a Eu750m five year deal for Intesa Sanpaolo, after what had been a fairly busy period the week before. The lull had been expected, however, given that many market participants were gathered in Barcelona on Wednesday and Thursday for an annual covered bond industry gathering. Indeed, the timing of Intesa’s deal, which was launched on Thursday during a major conference, left many market participants puzzled as to the rationale for such a move. It is the second year in a row that the Italian issuer chose such timing. (See below for more.)

This morning syndicate bankers said that the covered bond market was quiet, as were other parts of the debt capital markets, but that they expect supply to be forthcoming.

With geopolitical risk linked to the situation in Syria somewhat off the table given the progress of a diplomatic initiative, the main potentially disruptive event this week is pronouncements from the Federal Reserve on Wednesday on how it intends to steer its quantitative easing programme. The withdrawal of Larry Summers as a candidate to succeed Ben Bernanke has lifted sentiment as it is seen to pave the way for the appointment of Janet Yellen, who is considered to be more dovish on the question of tapering.

Syndicate bankers said that any new deals would ideally be launched by the time of the Fed’s press conference, and that market conditions are accommodative.

“The market is in good shape,” said a syndicate official. “It was pretty positive this morning on the weekend newsflow and I don’t think it will stay quiet.

“The market is there so there is no reason people can’t be doing something.”

New issue candidates include Kommunalkredit Austria, which finished a roadshow last week, with BNP Paribas, Deutsche Bank, DZ Bank, Erste Bank, and LBBW working with the issuer. A deal from the government-owned issuer would be its first since February 2011.

Bank of Montreal has also been meeting with investors, having mandated Barclays in this regard, but the issuer does not yet have a legislative covered bond programme approved by Canada Mortgage & Housing Corp (CMHC), which it would need in order to tap the markets. ANZ New Zealand is another issuer to have met with investors, and there are several who are starting roadshows this week to ensure a well-stocked pipeline.

NIBC begins a roadshow of a conditional pass-through programme today, having last week mandated Credit Suisse, LBBW, NIBC and RBS, and Austria’s Raiffeisenlandesbank Niederösterreich-Wien (RLB NOe-Wien) starts a roadshow on Wednesday, working with Crédit Agricole, DZ Bank, LBBW, JP Morgan, and RLB NOe-Wien.

Intesa timing puzzles

Intesa Sanpaolo priced a Eu750m five year obbligazioni bancarie garantite (OBG) issue on Thursday after having targeted a Eu1bn deal. Leads Banca IMI, BNP Paribas, ING and RBS priced the issue at 90bp over mid-swaps, the tight end of guidance of 90bp-93bp over, on the back of an order book of around Eu800m.

“The issuer got a smaller size at a tight price,” said a lead syndicate banker.

The timing of the deal – launched during a major industry conference – struck syndicate bankers as odd, and they said they struggled to see what the rationale for the move could have been, but that the issuer must have had a reason.

The issuer had not responded to queries from The Covered Bond Report by the time of publication.

A syndicate banker at one of the leads said that at 90bp over, the deal came with a new issue premium of around 8bp-9bp, which was on the small side for a peripheral transaction. The re-offer spread was equivalent to around 120bp through Italian government bonds, according to the syndicate official, who added that the deal showed the limits to what can be achieved in terms of tight levels versus the sovereign.

Domestic investors took the bulk of the bonds, with a 35% share, followed by Germany with 23%, France 14%, the UK 13%, the Benelux 9%, Switzerland 2%, Iberia 3%, and others 1%.

Fund managers were allocated 50.4%, banks and private banks 29.2%, insurance companies 9.8%, pension funds 6.7%, and others 3.9%.