Kommunalkredit Austria priced the first benchmark covered bond in nearly two weeks today (Tuesday), a Eu500m seven year that a lead said is the first low beta deal this year to come flat to secondaries. NordLB is set to launch a second aircraft Pfandbrief tomorrow.

The deal for Kommunalkredit Austria (KA) is the state-owned entity’s second benchmark covered bond since 2011, after a Eu500m five year in September, and comes after an extensive deal-related roadshow that finished on Friday.

The leads used yesterday (Monday) to follow up on investor feedback and, with markets opening well this morning and newsflow around fellow Austrian bank Hypo Alpe Adria (HAA) deemed positive, proceeded to market a new seven year issue for KA.

The future of nationalised HAA has been in focus recently, and the participation of other Austrian banks in a bad bank was one of the options under discussion before the Austrian finance ministry yesterday said it had been ruled out.

“It hasn’t been a great backdrop for Austria in the last couple of sessions, but that has certainly been a bit more clear into today,” said the KA lead syndicate official, adding that the deal was helped by the roadshow and follow-up investor work.

KA’s deal is the first benchmark covered bond since 29 January, with volatile market conditions since then having contributed to keeping a lid on new supply. Issuers tapping the senior unsecured markets yesterday kickstarted new FIG issuance after the recent lull, although syndicate bankers were confident covered bond supply would also emerge this week.

NordLB is set to tomorrow (Wednesday) launch its second aircraft Pfandbrief, a Eu500m five year deal that will be lead managed by Commerzbank, DZ Bank, NordLB, Société Générale and UniCredit. The issuer’s first such deal, a July 2017 issue, was trading at around 9bp over mid-swaps, mid, before the deal was announced today, according to a lead syndicate official. Other comparables consulted by the leads include December 2019 and January 2021 NordLB public sector Pfandbriefe, which were around 16bp through and 6bp through, respectively, he said.

The public covered bond deal pipeline is otherwise bare, although an Italian bank is said to have mandated for an obbligazioni bancarie garantite (OBG) issue.

KA leads HSBC, LBBW, Natixis, Raiffeisen Bank International and UniCredit will price the Austrian issuer’s seven year fundierte Bankschuldverschreibung at 30bp over mid-swaps, the tight end of guidance of the 32bp over area that followed initial price thoughts of the mid-30s over.

Around Eu1.1bn of orders were placed for the Eu500m no-grow transaction (pre-reconciliation), with some 90 accounts participating, according to a lead syndicate official.

He said that, at 30bp over, the deal was coming without a new issue premium, a first for low beta euro covered bond supply this year, with such deals on average offering a 3bp-5bp concession.

He put KA’s September 2018s at around 20bp over, mid, and valued the curve extension at 10bp, leading to fair value of 30bp over for a new seven year.

He said that KA’s deal offered considerable incremental yield compared with where outstanding Austrian covered bonds are trading and that this combined with limited supply meant that “the yield grab superseded the relative value to KA curve” considerations.

Syndicate bankers away from the deal agreed that it was coming flat to secondaries. One said the pricing was “spot on” and “absolutely fair”. Another said KA’s deal went surprisingly well given the uncertain future of the issuer.

KA was nationalised in 2008 and was due to be privatised by June 2013, but the restructuring plan was amended in July 2013 when privatisation showed itself not to be a viable option. Under the new plan, KA is not permitted to grant new loans, but is continuing with consultancy services and capital market refinancing business.