National Australia Bank is pricing a Eu500m tap of a May 2021 covered bond at 9bp over mid-swaps today (Wednesday), 17bp tighter than where the underlying issue was sold in May, to highlight what a lead syndicate banker said has been “amazing” spread compression.

Leads Crédit Agricole, NAB and UBS launched the tap this morning with initial price thoughts of the 10bp over mid-swaps area, with the intention understood to be to size the increase at Eu250m to slightly more — the transaction was formally marketed as for Eu250m minimum.

Guidance was subsequently set at the 9bp over area, and the tap – at Eu500m far in excess of the targeted minimum – will be priced at 9bp over.

At that re-offer spread, the increase is coming 17bp tighter than where the initial issue, a Eu750m seven year, was sold on 21 May, at 26bp over. The original deal drew more than Eu1bn of demand and was priced at the tight end of guidance, albeit after what was seen as a slow bookbuild.

“It is amazing to see how the compression is going,” said a syndicate banker on today’s increase, “and I think it is set to continue. The tap was impressive.”

Around 35 accounts were involved, which he described as “a great outcome”.

The transaction is further confirmation of the supportive issuance conditions that prevail, he added, citing traction from the anticipated treatment of covered bonds in Liquidity Coverage Ratios (LCRs), net negative supply, and expectations of limited upcoming supply.

The NAB 1.375% May 2021s were trading at 8bp this morning pre-announcement, indicating a new issue premium of 1bp over, according to the syndicate banker on the transaction, in line with the new issue concession seen by a syndicate official away from the transaction.

NAB’s tap is the second benchmark covered bond supply this month, after a Eu500m increase of a May 2017 mortgage Pfandbrief for Landesbank Hessen-Thüringen (Helaba) on Thursday. Deutsche Pfandbriefbank (pbb) priced a Eu175m tap last Monday (18 August), but this was a retention trade and not publicly marketed.

At Eu1bn, supply so far this month pales in comparison with the full month of August last year, when Eu5.7bn of deals were priced, and issuance activity is generally expected to continue to be relatively subdued. A couple of issuers are said to be lining up trades, however, which could still emerge this week and otherwise next week.

The modest issuance activity applies across markets, with a syndicate banker this morning noting that only Eu13.8bn of bonds have been issued across all segments this August compared with Eu44bn last year.

After BMW Finance was in the market yesterday (Tuesday), today in financials UBS was out with Eu3bn of three and seven year senior unsecured issuance, and UniCredit and Swiss Re Corporate Solutions announced hybrid capital transactions.

“The pipeline is pretty thin in senior and covered, and the focus seems to be on capital,” said a syndicate banker this morning.