UBS is selling its first euro covered bond since January 2012 today (Thursday), a Eu1bn seven year that met with solid but unspectacular demand and will be priced flat to a Eu1bn seven year for Lloyds yesterday, with a lead banker noting the bonds’ non-LCR eligibility as a factor.

The deal is one of two transactions that make for contrasting offerings in the market today, with a Eu1bn seven year new issue for Italy’s Banca Monte dei Paschi di Siena coming with a triple digit spread, 160bp over mid-swaps, and carrying split ratings that straddle the investment grade threshold. More than Eu4bn of orders were placed for MPS’s deal. (See separate article.)

UBS leads ABN Amro, Banca IMI, Deutsche Bank, Erste Bank, Goldman Sachs, Natixis and UBS will price the Swiss bank’s deal, a structured covered bond, at 15bp over after having initially marketed the transaction at the high teens over. The initial price thoughts (IPT) were followed by guidance of 15bp-17bp over, which was later revised to 15bp over plus/minus 1bp.

More than Eu1.6bn of orders were placed for the deal, which is UBS’s first covered bond in the euro market since January 2012, when it priced a Eu1.5bn five year. It then focussed on the US dollar market, where it launched three deals between January 2012 and March 2013, before returning to euros today.

Some syndicate bankers away from the leads felt the level at which UBS’s covered bond was first pitched was attractive to cheap, with one putting the new issue concession at the IPT stage at 6bp-8bp and another seeing the correct pricing for UBS’s deal at 13bp over, inside Lloyds.

“UBS is a bit cheap,” he said.

Lloyds Bank yesterday (Wednesday) priced a Eu1bn seven year at 15bp over on the back of more than Eu2.5bn of orders.

A UBS lead syndicate official said the deal went very well and that the spread could have been set at 14bp, but that the 15bp over level was decided on to be “investor-friendly”.

“It was nothing special, but a very good deal and a very good level,” he said.

Another syndicate banker on today’s deal for UBS said that the leads looked to Credit Suisse’s curve for guidance on pricing given a lack of fresh euro pricing points for UBS.

Credit Suisse has tapped the euro market twice this year. According to a UBS lead, a Credit Suisse Eu1.25bn seven year from January is trading at 15bp/13bp over after pricing of 13bp over, and a Eu1.75bn five year from early March at 11bp/8bp over, which also came at 13bp over. The syndicate banker put UBS 2022s at 16bp/13bp over and December 2019s at 3bp over.

“So the question is how much the curve is worth,” he said, “knowing that the December 2019s are very tight, at 3bp.”

He said the new issue premium was around 2bp-3bp.

He flagged the ineligibility of UBS’s covered bonds, as Swiss structured issuance, for regulatory Liquidity Coverage Ratios (LCRs) as having an impact on demand and on pricing.

“There’s clearly been a dynamic in the market in the past 18 months around the development of LCR eligibility, with bank treasuries keeping LCR-eligible deals tight,” he said. “This deal is not LCR-eligible but the market has moved on so it’s not ticking all the boxes.”

He said that UBS would historically probably come through UK issuance, but that this has changed somewhat given the role bank treasuries are playing.

“Bank treasuries are holding the market, especially low beta, at tight spreads,” he said.

Another syndicate official away from the leads said that UBS’s deal pointed to more sluggish appetite for core supply, for which there is limited performance potential given already tight spreads, but said that the spread on UBS’s transaction compared with that for Lloyds was not surprising given the rarity of supply from the UK issuer.

Lloyds’ deal was its first euro covered bond since January 2012, but also the first UK euro issue this year and rare supply from the UK for a couple of years. (See separate article for more.)