Italy’s Credito Emiliano is selling a Eu750m five year benchmark today (Tuesday) to provide the market with its first peripheral supply this month, with the OBG duly highly sought after by investors seeking performance potential and lead syndicate officials highlighting the competitive pricing.

The deal is one of three benchmark covered bonds in the market today, with Deutsche Kreditbank and KBC Bank also out with new issues after BNP Paribas and Helaba got the market off to a good start yesterday (Monday). Today’s deals take this week’s tally of transactions to five and supply volumes to Eu4bn. (See here for coverage of DKB’s and KBC’s deals.)

A syndicate official said that the global market backdrop is a little weaker today, but that the latest covered bond transactions went well after strong results for yesterday’s deals.

BNP Paribas Home Loan SFH and Landesbank Hessen-Thüringen (Helaba) each priced Eu1bn five year deals yesterday, BNP Paribas’ coming at 8bp over mid-swaps and Helaba’s flat to mid-swaps. At 8bp over, BNP Paribas’ deal is said to be the tightest French benchmark covered bond since a CM-CIC five year transaction in 2007, which is said to have come at 1bp through mid-swaps, while Helaba sold the biggest German Pfandbrief transaction since January 2013. (See here for more on Helaba’s transaction.)

Italy’s Credito Emiliano drew the most demand of the three issuers in the covered bond market today, with some Eu2.6bn of orders (pre-reconciliation) placed for the obbligazioni bancarie garantite (OBG) issue, which features a five year maturity.

As such, the deal confirms the trend for strong appetite for peripheral issuance, in the senior unsecured market as well as covered bonds, as investors seek to secure performance potential in so-called convergence trades, said syndicate officials.

A syndicate official away from the leads said that the Credito Emiliano deal was “the usual Italian peripheral blow-out”.

“If and when investors can get a hand on peripheral quality they try to be in the books, resulting in very quick bookbuilding,” he said.

Leads Barclays, BNP Paribas, Credit Suisse, HSBC and Société Générale will price the OBG at 88bp over mid-swaps.

At that level, the deal is the first Italian benchmark covered bond from a non-national champion to come inside 100bp over mid-swaps since at least 2011.

A syndicate official at one of the leads was pleased with how the transaction progressed. Having first marketed it at the 95bp over area, the leads then moved the spread to the 90bp over area, where official guidance was set on the back of a Eu1.5bn order book. The deal size was confirmed as Eu750m shortly afterwards, and the re-offer spread at within plus or minus 2bp of 90bp over.

For initial price thoughts (IPTs), a Credito Emiliano July 2020 and a UBI October 2020, trading at 107bp and 97bp over, respectively, were used as inputs, according to the syndicate official.

“We also used a UBI October 2019 – almost a six year – trading at 87bp as a major reference point,” he added. “So this is probably coming flat to where a new UBI would come.”

Another lead syndicate official highlighted this as a strong result.

Credito Emiliano’s last benchmark covered bond before today’s deal was a Eu500m seven year priced at 180bp over in early July last year. The deal comes amid a change in Italy’s leadership, with the mayor of Florence, Matteo Renzi, mandated to form a new coalition government after Enrico Letta resigned as prime minister on Friday.