BBVA, OP Mortgage Bank and Yorkshire Building Society launched new benchmark covered bonds today (Wednesday) as the market experiences one of its busiest spells so far this year, with Yorkshire’s first deal since 2010 the most in demand of the lot.

Today’s deals add to an already busy week in the benchmark covered bond market by recent standards, with three new issues priced yesterday for a total of Eu2.25bn. Danske Bank, Dexia Kommunalbank Deutschland and Banco Santander Totta were behind those deals. (See separate articles and below for more on this supply.)

“It’s been a very strong week for covered,” said a syndicate official. “The market is very solid and I expect it to continue into next week.”

Nonetheless, today’s new issues are expected to be the last for this week given a keenly anticipated European Cenal Bank meeting tomorrow (Thursday), when the ECB is widely expected to announce rate cuts and potentially also extraordinary measures.

Yorkshire Building Society attracted the most demand of today’s deals, with leads Danske Bank, DZ Bank, JP Morgan and Natixis gathering around Eu1.9bn of orders from more than 90 accounts for the Eu500m no-grow. The transaction is the UK issuer’s first euro benchmark covered bond since September 2010.

It was priced at 22bp over mid-swaps, the tight end of guidance of the 25bp over area, which followed initial price thoughts of the high 20s over.

A lead syndicate official said that the deal met with “a fantastic response, with quite significant single orders”, and syndicate bankers away from the trade were also positive about it.

“I pitched this a little wider, but was wrong because it has gone really well,” said one. “The 22bp level is a tremendous result for Yorkshire. Kudos to the banks who got the mandate and showed that their level was right.”

Another syndicate official said Yorkshire appeared to have gone fine. He said that the 7bp differential between Yorkshire coming at 22bp over versus a re-offer level of 15bp for a Lloyds seven year on 9 April was pretty fair, with the Lloyds deal now at around 13bp over and there being a spread differential of around 5bp between the two UK issuers in shorter maturities.

Another noted that Yorkshire’s covered bond met with a better reception than a senior unsecured transaction the issuer priced in March.

OP Mortgage Bank built an order book of around Eu1.5bn for a five year issue, which leads Crédit Agricole, Deutsche Bank, Pohjola, Société Générale and UBS are due to price at 5bp over, the tight end of guidance of the 7bp over area.

Initial price thoughts had been set in the high single digits over. A lead syndicate official put fair value at 4bp-5bp, based on outstanding 2018s at around flat and 2021s at 10bp-11bp over. The 5bp re-offer spread therefore represents pricing roughly flat to the issuer’s curve, he said.

“It was a very good transaction,” he said, noting that bank treasuries and some other investors are anticipating spreads to tighten further as a result of action from the ECB and that this is driving good demand for supply despite tight levels.

A syndicate banker away from the leads noted that the spread achieved by OP was on a par with the tightest non-German benchmark this year, a Eu1.25bn five year for Stadshypotek in late March, and was therefore “a pretty good result” – which was also how he described the new issue premium, which he put at 2bp-3bp.

Another banker nevertheless suggested that OP might have even hit 4bp over, arguing that, in light of where Swedish covered bonds had been priced and were trading, the leads could have begun with IPTs of the mid to high single-digits over instead of the high single-digits.

Today’s deal is OP Mortgage Bank’s second benchmark covered bond this year, coming after it sold a Eu1bn seven year at 14bp over in March.

BBVA is pricing its first benchmark covered bond of the year today, a Eu1bn 10 year cédulas hipotecarias that is said to have drawn over Eu1.5bn of demand. Leads Bank of America Merrill Lynch, BBVA, Crédit Agricole, Commerzbank and Natixis will price the deal at 73bp over mid-swaps, having gone out with IPTs and then guidance of the 75bp over area.

A syndicate official away from the leads said that, at 73bp over, the deal was coming without much of a new issue premium, if any.

“It’s a very strong result and highlights the bid for yield,” he added.

He said that the issuer had been eyeing the market for a few days and that a sell-off in Bunds yesterday was helpful for the long-end bid and that this may have influenced the issuer’s decision to come to market.

Another said that the emerging consensus that rates will remain low for a prolonged period has helped support demand for long dated paper, noting that BBVA’s covered bond was coming after several 10 year issues in the senior unsecured market.

Commonwealth Bank of Australia is set to extend this week’s busy covered bond activity into the US market, with the launch today of a five year dollar benchmark. The Australian bank this morning announced IPTs of the mid to high 30s via leads Barclays, CBA, Citi and RBC.

This compares with a spread of 35bp over for a Westpac $1.75bn five year issued on 14 May, which began with similar IPTs. A syndicate official at one of CBA’s leads said that the Westpac issue was now trading at 33bp over, and noted that Westpac November 2018s trade at 32bp over and CBA December 2018s at 31bp over.

Totta highlights Portuguese evolution

Banco Santander Totta priced its second covered bond of the year yesterday, a Eu750m five year. Leads BNP Paribas, Deutsche Bank, Goldman Sachs, RBS and Santander priced the obrigações hipotecarias at 93bp over on the back of some Eu1bn of orders. IPTs and then guidance were set at the 95bp over area.

A syndicate official on the deal said that the transaction highlighted the evolution in the Portuguese covered bond market, noting that it is becoming more traditional and stable and that there are an increasing number of comparables.

“We have not seen the big swings or rallies that there have been in previous months, making covered easier to price,” he said.

He said that the leads had not expected a major shift in the spread from IPTs to pricing, allowing them to be more aggressive from the outset.

“Rather than going through a process of a 10bp-15bp basis point revision, we could be clear this is more transparent and fairer to investors,” he said.

Only a few orders dropped out of the books when the spread was tightened to 93bp over, he added.

“This was a solid transaction, with less than a 20bp curve on the three to five year maturity, showing how it has outperformed its peers,” he said. “Despite the sovereign volatility that we’ve seen in Portugal, covered bonds are proving resilient.”

Five year Portuguese government bonds were trading at 185bp over mid-swaps yesterday, according to the syndicate official.

He added that the order books for Totta’s deal showed that the accounts attracted to Portuguese covered bonds are reverting back to a more traditional type.

“The takeaway from the order books is that it is not the sort of trade that hedge fund guys are jumping on board with,” he said. “Now it’s traditional covered bond investors, leading to higher quality order books.”

Germany and Austria were allocated 26%, France 19%, the UK 13%, Portugal 10%, Spain 8%, the Benelux 8%, Finland 7%, Italy 3%, Switzerland 3%, and other 3%.

Fund managers took 70%, insurance companies and pension funds 14%, banks and private banks 14%, central banks 1%, and others 1%.

Lloyds buyback gets contrasting results

A Lloyds group tender offer for three short dated covered bonds achieved sharply contrasting hit rates upon closing yesterday, with none of a £500m December 2014 floating rate note being bought back but 45.5% of two euro issues repurchased.

While the Bank of Scotland (BOS) sterling issue was untouched, 41.7% of a Eu1.5bn Lloyds Bank 3.375% March 2015 benchmark was bought back and 52.5% of a 4.75% January 2015 BOS deal. Some Eu834.32m of the latter was outstanding ahead of the tender, with Lloyds having already bought back the majority of what was originally a Eu2bn deal.

Citi and Lloyds were dealers. Neither they nor the issuer could be reached for comment ahead of publication.