Pbb and National Bank of Canada are pricing euro covered bonds on a busy day in the public bond markets today (Tuesday), with both new issues clearly oversubscribed on the back of what bankers said were attractive spreads. The deal pipeline is refilling, most recently with an AIB mandate.

Today’s new issues follow public mandate announcements yesterday (Monday) afternoon, after the market showed itself to be in an accommodating mode following a closely watched referendum in Crimea on Sunday.

“In primary the FIG space did what was expected,” said a syndicate official. “It waited to assess and then as the corporate space led the way and convinced that it’s safe to go, announced deals in the afternoon for transactions today.”

The pipeline is being re-stocked, too, with Finland’s Aktia Bank today announcing the mandate for a roadshow of its covered bond programme, and Ireland’s AIB Mortgage Bank announcing plans to sell a seven year benchmark mortgage backed Asset Covered Security (ACS).

Commerzbank, JP Morgan, LBBW and Nordea have the mandate for Aktia’s roadshow, which will start next Tuesday (25 March) and last until 3 April. AIB’s ACS is due to be lead managed by Barclays, Commerzbank, Danske, HSBC and Société Générale, and would be coming after a Eu750m five year deal for Bank of Ireland Mortgage Bank from last Tuesday (11 March), which was priced at 80bp over mid-swaps.

Dutch issuer NIBC Bank is also scheduled to hit the road, having yesterday announced investor meetings in connection with its conditional pass-through programme.

In the market today were pbb, with a Eu500m no-grow five year mortgage backed Pfandbrief, and National Bank of Canada, with a Eu1bn seven year issue. Both deals were clearly over-subscribed, with pbb drawing more than Eu1.1bn of orders and NBC building an order book of more than Eu1.5bn. Syndicate bankers away from the deals said the deals came with attractive spreads.

NBC is pricing its transaction at 22bp over, after guidance of 22bp-24bp over and IPTs of the mid 20s over. BNP Paribas, Commerzbank, National Bank of Canada and RBS are the lead managers.

A syndicate official away from the leads said that the tightening of the spread was not surprising and that the level looked somewhat cheap, citing an August 2018 CIBC issue at around 2bp-3bp over in the secondary market and a Royal Bank of Canada August 2020 issue at 16bp-17bp over.

“There seems to have been a bit of pushback on Canadian covered bonds,” he said, “and they need to offer a bit more juice to attract interest given question marks about LCR eligibility.”

A syndicate banker on NBC’s deal said the leads were not communicating a new issue premium before an official update.

An analyst previously noted that Canadian covered bonds could count toward liquidity buffer requirements for European banks if the European Commission decides to follow a proposal from the European Banking Authority to use the local regulation treatment of covered bonds for non-EEA countries.

Bank of Nova Scotia has announced that it has established a legislative covered bond programme. The issuer’s programme entered the Canada Mortgage & Housing Corp (CMHC) registry in July. (See here.)

Pbb ‘on the cautious side’

Pbb is pricing its deal at 14bp over mid-swaps, after leads Dekabank, DZ Bank, Natixis, NordLB and UniCredit began marketing the deal with initial price thoughts (IPTs) of the mid-high teens over mid-swaps before setting guidance at the 15bp over area.

Some syndicate officials away from pbb’s deal said they were surprised by the level at which the new issue was initially marketed, with one describing IPTs as “pretty, pretty generous”.

“Taking pbb’s outstanding maturities into consideration, the very high concession is a bit puzzling,” he said. “I would put fair value at around 6bp over to 7bp over.”

The German bank last issued a euro benchmark covered bond in January, a Eu500m eight year priced at 17bp over that met with a reticent response from investors. The aforementioned syndicate banker said that issue is trading at 18bp over, and that pbb has an August 2018 issue trading at 4bp over, a June 2019 at 8bp over and a March 2020 at 7bp over.

A banker at one of the leads said that the spread could have been driven tighter, to 13bp over or even 12bp over, but that this would have been a step “too fast”. He put the new issue premium at 5bp.

A banker on pbb’s deal said that it was marketed “on the cautious side”, with the leads mindful of the difficulties that some deals from agencies and German Pfandbrief issuers have had in the market given tight levels. Pbb’s plans to return to the market on a regular basis also influenced the approach to the spread, he said.

“We are in this period where investors are looking for spread,” he said. “There have been a number of deals from the more expensive issuers in Germany that did not go as successfully as one would have expected, and with this in mind we wanted to make sure we got a proper reception.”

Recent events, including the ongoing situation in Ukraine, has led investors to take a more cautious approach, he added.

He noted that pbb has high wholesale funding needs and wants to be able to come to the market frequently, and that “giving investors a little more” will be helpful for future deals.

“If you just come to market once a year, it’s a different story, but if you want to come several times it’s more important to be faithful and keep investors on board,” he said.

He said that he would expect pbb’s deal to tighten by some 2bp-3bp in the secondary market.

Pbb has been an active issuer recently, in 2013 for example pricing four euro benchmark covered bonds in addition to some taps.