CM-CIC and DKB launched 10 year covered bonds today (Wednesday), with a “sensible” approach to pricing key to overcoming the challenge of a record low coupon on DKB’s deal, said a lead banker. Canadians and a Kiwi have mandated for investor meetings.

Deutsche Kreditbank (DKB) has priced a Eu500m no-grow 10 year mortgage Pfandbrief via BayernLB, Crédit Agricole, Deutsche, NordLB and WGZ Bank. The leads set IPTs in the mid-teens over before setting guidance at the 14bp over area. With more than Eu500m of orders collected, the spread was then fixed at 13bp over.

The longest dated DKB covered bond outstanding was a February 2021, trading at 7bp over, according to syndicate bankers. A syndicate official at one of the leads said that a UniCredit Bank AG September 2022, today at 2bp over, and an April 2024, trading at 11bp over, served as comparables. However, he noted the steep UniCredit curve may not be applicable to the DKB transaction, and put fair value at 11bp over, indicating a NIP of 1bp-2bp.

A syndicate official at one of the leads said that he was pleased with how the transaction went, noting that selling a 10 year Pfandbrief in the prevailing low yield environment is not “the obvious trade”.

“But if an issuer has reasonable pricing aspirations and the syndicate takes a sensible approach in terms of guidance, it works,” he said. “The deal offers a record low coupon on a 10 year covered bond, so it had to look appealing in spread versus swaps from the outset and this is precisely what the IPTs were aimed at.”

The coupon on DKB’s deal is 1.625%.

A covered bond analyst noted that the volume of redemptions this month, Eu20.4bn, would be supporting demand for the new issue.

Crédit Mutuel-CIC Home Loan SFH (CM-CIC) leads Barclays, Natixis, Société Générale and UBS announced initial price thoughts (IPTs) of the high 20s over mid-swaps for the 10 year transaction, later going out with guidance of the 27bp over mid-swaps area. The spread was then fixed at 26bp over, and the size set at Eu1bn with orders in excess of Eu1.5bn.

Regarding comparables, the spreads versus OATs of three outstanding CM-CIC issues – a January 2023 at 12bp over mid-swaps, a September 2023 at 18bp over and a February 2024 at 19bp over – were taken into account, according to a syndicate official, who said that each was around 6bp above OATs. With 10 year French OATs today at around 19bp over mid-swaps, CM-CIC’s covered bond is coming with a new issue premium (NIP) of 1bp-2bp, according to the syndicate banker.

“A small concession was given, but not too much,” he said. “We are pleased with how the deal went and believe the market is receptive to issuance.”

A syndicate banker away from the leads said that 26bp-27bp over was in line with where he would have priced the transaction based on the secondary market performance of CM-CIC covered bonds. Another said that 27bp over could be considered cheap given that CM-CIC January 2024s are trading at 19bp over, but he added that the pricing of French covered bonds is heavily determined by relative value versus government bonds and that at 27bp over mid-swaps today’s issue is offering a small new issue premium of 1bp-2bp.

No new deal mandates had been announced by early this afternoon, but a syndicate banker said that he is “not giving up for further issuance” this week, adding that he believes issuers will want to take advantage of a constructive market.

Another syndicate official said yesterday that a third issuer was considering coming to market today, but wanted to first wait and see how the DKB transaction performed. He today said that the issuer has decided to hold off, adding that the deal would likely now be next week’s business.

Two Canadian banks have mandated for investor meetings. Bank of Montreal (BMO) is working with Commerzbank, and Bank of Nova Scotia (BNS) has mandated Barclays and its own investment bank. In addition, New Zealand issuer ASB Bank has mandated parent Commonwealth Bank of Australia and JP Morgan to organise a series of investor meetings.

The UK’s Bradford & Bingley yesterday announced a cash any and all tender offer for two Swiss franc denominated covered bonds, a Sfr200m (£133m, Eu164m) 2.875% October 2031 issue and a Sfr150m 3.5% July 2027 issue. BNP Paribas is the dealer manager. The purchase spread has been set at 8bp through mid-swaps for the 2031 bonds and 15bp through for the 2027 issue, which includes a premium of 1.5%, according to the offer documentation. The offer expires 30 June.

The issuer is also seeking approval, by extraordinary resolution, for early redemption of all (but not some) of any of the bonds targeted for buyback that remain after the completion of the tender offer. The bondholder meetings are on 2 July.