Little covered bond issuance is expected next week, after no new deals were priced this week, although Goldman Sachs will on Tuesday finish a roadshow of a new structured secured product that, if a deal emerges, appears set to be priced off the firm’s unsecured curve.

The only benchmark covered bond supply to hit the market this week was a Eu150m tap of a Deutsche Pfandbriefbank (pbb) 0.875% January 2017 mortgage Pfandbrief, which leads Barclays, BNP Paribas, Commerzbank and NordLB priced at 5bp through mid-swaps. The lack of supply this week comes after six issuers last week priced deals for a total of Eu5bn to make that the second busiest week of the year.

Syndicate bankers this (Friday) morning said there is no pipeline to speak of in covered bonds, but that the market is open for deals. One said that his expectations are for supply to be limited, noting that any issuance would probably be front-loaded given an ECB meeting and US non-farm payrolls on Thursday.

The lack of activity in the primary market is being partly attributed to bank treasury teams reconsidering their funding plans in light of the newly available option of borrowing from the ECB under targeted longer term refinancing operations (TLTROs) that the central bank announced in early June.

FIG senior unsecured supply was limited this week, too, making the subordinated market the main source of new issuance this week.

Goldman Sachs, meanwhile, is three days into a roadshow of a new contractual secured product that it has named “fixed income global secured structured covered obligations” and would be issued by an entity reflecting that designation, FIGSCO.

The bonds would be backed by fixed income assets sourced from Goldman Sachs, with any shortfall from the assets in the event of an issuer default covered by Goldman Sachs Mitsui Marine Derivative Products (GSMMDP), which is joint and severally guaranteed by Goldman Sachs Group and Mitsui Sumitomo Insurance.

GSMMDP acts as a total return swap (TRS) counterparty and is the basis of a preliminary triple-A rating that Standard & Poor’s has assigned to FIGSCO bonds, which for the purpose of a pre-sale report Goldman Sachs set as a Eu1bn July 2021 deal.

“Investors should note that we did not give benefit to the underlying collateral or the documented collateral posting requirements in our rating analysis of the series 2014-01 notes,” said S&P in the pre-sale report on Wednesday. “Our rating relies solely on the obligation of the TRS counterparty to make interest payments and any shortfall in principal payments on the notes under the TRS agreement.”

GSSMDP is rated AAA by S&P because of the joint guarantee provided by Goldman Sachs Group and Mitsui Sumitomo Insurance.

Barclays, Crédit Agricole, Natixis and UBS are on the FIGSCO mandate alongside Goldman Sachs. The roadshow finishes on Tuesday, according to a syndicate official at one of the leads.

Although Goldman will have clear pricing targets in mind, according to the lead syndicate official, the pricing discussion is at present being cast more broadly, namely in terms of the percentage premium to Goldman senior unsecured spreads at which a FIGSCO deal should be priced. The FIGSCO programme is not being marketed as a covered bond, but it is being marketed in relation to the asset class and the ratio between senior unsecured and covered bond spreads in certain jurisdictions is also said to be serving as a pricing input.

And although Goldman would no doubt prefer it if Mitsui funding levels served as the pricing pivot given that the Japanese insurer trades considerably tighter – by around 50 in CDS – it appears that market participants are pricing a potential FIGSCO deal off Goldman senior unsecured levels.

“Mitsui is the third recourse and not the most pertinent reference point,” said one banker.

LBBW analysts suggested a spread over mid-swaps of at most 50% of Goldman senior unsecured levels for a FIGSCO seven year, which would put it in the 40bp over area based on an October 2021 Goldman senior unsecured deal trading at 88.6bp over.

Another banker said that “the link to a Japanese insurer is definitely a positive”, but also thought about the pricing in relation to Goldman’s senior unsecured curve while also noting where peripheral covered bonds trade – in the 40bp over range in the five year maturity.

The FIGSCO structure is being pitched at rates investors, with Goldman aiming to take advantage of a demand overhang for highly rated supply. However, FIGSCO bonds would not come with key regulatory benefits that come with traditional covered bonds, not being eligible for Liquidity Coverage Ratios or preferential risk-weighting, while ECB repo treatment is unclear. According to one banker the bonds will probably be eligible for Barclays covered bond indices, but not iBoxx’s, with index treatment being a key factor for asset manager demand.

He said that the bonds would have to offer value to attract bank demand given that they are not LCR-eligible, although one bank treasury investor said he is not looking at the FIGSCO structure because they do not come into question for the institution’s liquidity portfolio.

The aforementioned banker said that the pricing should reflect “amazing” risk dispersion and that to the extent a FIGSCO issue is priced off Goldman’s senior curve rather than Mitsui it will offer “a lot of value”. He highlighted the ultimate recourse to two entities in G3 countries, the longevity of GSMMDP’s triple-A rating, and the risk dispersion as key strengths of the FIGSCO structure. Any first issue will not be rated by Moody’s, which rates GSMMDP Aa2.

The banker suggested that the pricing of FIGSCO deal could be thought of by looking at where a Commerzbank structured SME-backed covered bond came versus the bank’s senior unsecured levels. Trading in the 20s over, Commerzbank’s SME covered bond is at around 40% of senior levels, according to the banker, who added that the rating differential between Commerzbank at senior unsecured level and the SME covered bond is smaller than that between Goldman and the FIGSCO programme and the risk concentration in Commerzbank’s SME covered bond is higher than in the case of FIGSCO. Commerzbank’s five year SME covered bond was initially priced at 47bp over in February 2013, with some bankers at that time having suggested that a new Commerzbank senior unsecured deal would have been priced at 70bp-75bp over.