The covered bond market was quiet today (Thursday), in sharp contrast to the wave of supply yesterday that was spurred by an easing of the emerging markets-linked volatility of the preceding days, with a strong bid for peripheral supply standing out.

No new issues were out in the euro financial institutions bond market this morning, with sentiment having taken a renewed weaker turn yesterday (Wednesday) afternoon and remaining nervous, according to bankers. However, one said that issuers had not really been eyeing the market for deal launches today in any case given a US Federal Reserve announcement late yesterday and an Italian government bond auction today.

He said that the market is “OK-ish” and that he wouldn’t rule out issuance tomorrow (Friday) from a “brave” issuer, although another said supply would resume again next week, assuming supportive market conditions.

Issuance is very much window driven, he said, as illustrated by this week’s supply.

“Last Thursday the emerging markets kicked off, Friday also wasn’t a good day and then it’s not surprising that on Monday people are in wait-and-see mode. On Tuesday there was some consolidation and then on Wednesday several issuers wanted to issue.”

Commerzbank, Crédit Mutuel-CIC Home Loan SFH and UBI Banca were out at more or less the same time early yesterday morning, with Intesa Sanpaolo then deciding to pull the trigger after having carefully weighed the pros and cons of joining the market instead of waiting, said a lead syndicate official on the deal.

“We decided that there was room for a second OBG on the same day,” he said.

Intesa priced a Eu1.25bn 12 year obbligazioni bancarie garantite (OBG) issue at 108bp over mid-swaps on the back of some Eu2.2bn of orders.

At 108bp over, the deal came 73bp inside Italian government bonds, according to the issuer. Banca IMI, HSBC, Société Générale and UniCredit were lead managers.

The lead syndicate official said that the leads did not leave the order books open for as long as they would have had the deal been launched earlier in the day, and that the order book was of high quality, containing the Who’s Who of accounts.

The 12 year maturity was chosen to satisfy the issuer’s desire for long term funding and to be able to offer a 3.25% coupon, which would not have been possible in 10 years without a larger spread over mid-swaps, he said.

UBI Banca priced a Eu1bn 10 year OBG with a 3.125% coupon, at a re-offer spread of 118bp over.

The Intesa lead syndicate banker did not comment on whether Cassa depositi e prestiti (CDP), the Italian government-owned agency that is launching a Eu3bn OBG purchase programme, was involved in the transaction. (See here for previous coverage of CDP’s initiative.)

More than 100 accounts participated in Intesa’s transaction. Germany and Austria took 41%, Italy 26%, France 20%, the UK 5%, Iberia 4%, Switzerland 2%, and others 2%.

Asset managers were allocated 39%, insurance companies 25%, central banks and agencies 20%, banks 10%, pension funds 2%, and others 4%.

UBI also drew strong demand for its deal, building an order book of around Eu4.5bn (post-reconciliation) with 175 accounts involved. Barclays, Crédit Agricole, Goldman Sachs, Natixis, Société Générale and UniCredit were lead managers.

Germany and Austria took 45%, Italy 30%, France 11%, the UK 10%, Iberia 2%, Switzerland 1%, and others 1%. Asset managers were allocated 65%, banks 17%, insurance companies and pension funds 16%, and others 2%.

Periphery ‘no concern’

Yesterday’s Italian transactions are “a clear sign that the periphery is better bid”, according to a syndicate official involved in some of yesterday’s deals.

“It’s not a surprise in terms of spread and overall yield,” he said, “but more importantly it’s a clear sign that investors have no concern about these markets or credits whatsoever, and credit lines are available.”

A syndicate official on Intesa’s deal noted that no accounts dropped out of the order book for the OBG despite the market “collapsing a bit” in the afternoon. Yesterday’s deals are holding up well, he added.

Syndicate officials on the OBGs said that the Italian issuers did not end up paying any new issue premium, although it was necessary to include a concession when starting to market the deals given nervous markets.

UBI set initial price thoughts (IPTs) at the 130bp over area before moving to guidance of the 120bp over area. Intesa set guidance at the 115bp over area before coming to a re-offer spread of 108bp over.

Intesa’s OBGs are trading at around 105bp over today, and UBI’s at 112bp over, according to a syndicate banker.

France’s Crédit Mutuel-CIC Home Loan SFH also priced a strong deal yesterday, with some Eu2.1bn of orders placed. The issuer priced a Eu1.5bn five year obligation de financement de l’habitat issue, the largest deal of the day, at 14bp over mid-swaps.

BNP Paribas, Citi, Danske and Natixis were joint bookrunners on CM-CIC’s transaction, and initially marketed the deal with IPTs of the high teens over and then guidance at 15bp-17bp over.

A lead syndicate official said that 14bp over represents the tightest re-offer spread ever for a CM-CIC five year issue, and incorporates a small new issue premium of 2bp-3bp.

Some 96 accounts participated in the transaction. Germany and Austria took 28%, Nordics 18%, the Benelux 17%, the UK and Ireland 16%, supranational 6%, Asia 5%, France 5%, Switzerland 2%, and others 3%. Banks were allocated 52%, asset managers 29%, central banks and official institutions 13%, insurance companies 3%, and others 3%.

Commerzbank, meanwhile, met with weaker demand for what was the tightest deal of the day – a Eu500m no-grow five year public sector Pfandbrief priced at mid-swaps flat. Leads Banca IMI, Commerzbank, NAB, Natixis and UniCredit built an order book in excess of Eu500m, with pricing not budging from IPTs and guidance of the mid-swaps flat area.

German accounts bought 69% of Commerzbank’s deal, France 11%, Benelux 6%, Austria and Switzerland 6%, Nordics 3%, UK and Ireland 3%, and others 2%.

Banks were allocated 76%, funds 16%, central banks and agencies 6%, and others 2%.

“It’s getting tricker and trickier in the core for issuers to differentiate themselves,” said a syndicate official, noting that a Eu500m no-grow three year public sector Pfandbrief for WL Bank was an exception.

Westfälische Landschafts Bodenkreditbank was the sole FIG issuer in the market on Tuesday when it priced its deal, at 11bp inside mid-swaps, and its Pfandbrief was the shortest dated fixed rate euro benchmark covered bond of the year. Atypically for such tightly priced German Pfandbriefe, international demand outweighed that from domestic investors, according to a syndicate banker at one of the leads – Barclays, DZ Bank, NordLB and WGZ Bank.

Germany took 47%, Austria 21%, Switzerland 11%, the UK 9%, the Benelux 5%, Nordics 5%, and others 2%.

Banks bought 34% of the bonds, central banks 32%, asset managers 22%, insurance companies 11%, and others 1%.