UniCredit Bank Austria is today (Thursday) adding to a resumption of euro benchmark covered bond supply this week with a well-received Eu500m seven year public sector Pfandbrief, after Westpac yesterday raised $1.75bn via the first US-targeted covered bond of the year.

Bank Austria’s deal is the issuer’s third benchmark covered bond this year, but its first in public sector format, after it sold Eu500m mortgage Pfandbriefe in 10 years and five years in January and April, respectively. It comes after Swedbank Mortgage yesterday (Wednesday) priced the first euro benchmark issue in two weeks, a Eu1bn seven year that came at 8bp over mid-swaps.

A pick-up in primary market activity in covered bonds, at least to some degree, had been expected given issuers’ emergence from blackouts following results announcements, and a syndicate official said that although more issuers had considered tapping the market this week they decided to wait, with the tightening trend in spreads supporting such a decision.

“Next week business will continue,” he said.

Bank Austria leads Crédit Agricole, Danske, HSBC, LBBW and UniCredit are pricing the seven year issue, a Eu500m no-grow, at 25bp over mid-swaps on the back of some Eu1.5bn of orders, according to syndicate banker on the deal.

That compares with pricing of 23bp over for the five year mortgage deal that Bank Austria priced on 7 April.

Today’s new issue was announced yesterday afternoon, with the leads this morning setting initial price thoughts at the 30bp over area. This generated more than Eu800m of indications of interest, with the leads then setting guidance at the 28bp over area.

The lead syndicate official acknowledged that the leads could have taken an interim step of revised guidance of 25bp-27bp over, but said that they felt the order book was “of such good quality” that moving directly to the re-offer spread of 25bp over was justified, and that such a move was not unprecedented.

Westpac lays down US marker

Australia’s Westpac Banking Corporation yesterday priced the first US targeted benchmark covered bond of the year, a US$1.75bn (Eu1.28bn, A$1.87bn) five year that was included in a triple-tranche transaction otherwise comprising three year senior unsecured fixed and floating rate tranches for $1.25bn each.

Leads Bank of America Merrill Lynch, Citi, JP Morgan, HSBC and Westpac priced the covered bond at 35bp over mid-swaps on the back of $2.3bn of orders, with some 65 accounts in the book, according to a syndicate banker on the deal.

The transaction is the first US-targeted covered bond since December and was launched after the issuer uncovered good demand for a covered bond tranche given the lack of supply.

The lead syndicate official said that the 35bp over spread is equivalent to around 18bp-19bp over in euros, roughly where the issuer would come in the European market. The issue is coming with a negative new issue premium of some 1bp to the generic Australian dollar covered bond curve, he added, with NAB February 2019s at around 36bp over in the secondary market, for example.

The deal lays down a helpful marker for what is achievable in the US market, and should encourage other issuers to contemplate US dollar issuance, said the syndicate official.