CBA 7s set Aussie record as mart grinds tighter on CBPP3
Commonwealth Bank of Australia launched a Eu1bn seven year covered bond issue today (Tuesday), the first euro benchmark since CBPP3 buying began yesterday, and despite being outside the remit of the purchase programme it set a new tight for Australian covered bonds.
At 7bp over mid-swaps, the deal is the tightest ever euro benchmark Australian covered bond, beating a spread of 9bp over for a Eu500m tap of a National Australia Bank (NAB) seven year at the end of August, and well inside the previous tightest level for a new Australian benchmark, which was 17bp over for a five year ANZ deal in August 2013.
Leads CBA, HSBC, RBS and UBS went out with initial price thoughts of the 10bp over mid-swaps area for CBA’s deal this morning and then set guidance at the 8bp area (+/-1bp) when interest was in excess of Eu1bn. The re-offer was set at 7bp over on the back of a book of over Eu1.3bn, pre-reconciliation, and the issue sized at Eu1bn.
A syndicate official at one of the leads said the most relevant comparable was the NAB seven year (May 2021s), which he saw at 4bp over, bid, this morning. He also cited a May 2022 CBA issue at 6bp over, which he noted had a high cash price, and said that fair value was probably in the 5bp-6bp over range.
A syndicate official away from the leads said that pricing of 7bp or 8bp over would have been expected from the start, while another syndicate official away from the leads said that the 10bp area starting point made sense in the context of the Eu500m NAB tap.
He said that the level was in line with where the issue probably would have come last week, with CBPP3 therefore apparently yet to have an impact on primary market levels.
Another banker said that while Australian issuers were, despite being ineligible for CBPP3, nevertheless enjoying second order effects of the ECB’s actions given the overall positive momentum in the covered bond market.
The lead syndicate official agreed.
“Obviously there has been a lot of positive sentiment and momentum in general off the back of CBPP3,” he said. “Also, the fact that the LCR rules were clarified has helped clear up some of the eligibility question marks, which has helped the better backdrop.”
The eligibility of non-EEA covered bonds such as CBA’s as Level 2A assets was confirmed by the European Commission in a Delegated Act on the Liquidity Coverage Requirement on 10 October.
He noted that the last three euro benchmarks that have been issued have come from non-Eurozone banks that are ineligible for CBPP3.
“There is still a big question market of what the purchase programme means,” he said. “Maybe there is a bit of reluctance to be the first to test how it will work and there could be an advantage in coming second, third, or after.”
Another syndicate official agreed that, with spreads likely to grind tighter, there was no disadvantage in issuers waiting a week or two to issue – and that some are anyway awaiting the outcome of AQR over the weekend before coming to market.
Swedish issuers – again, outside the Eurozone – have also been cited as candidates for new issues as they come out of blackouts – with Swedbank having announced results this morning. However, several bankers said that suggestions a Swedish deal could come were speculative.
“It is like the Russian sub in the Baltic,” said one. “There may be a trade. There may not be a trade.”
Bankers saw no significant change in the Eurosystem’s activities today, with it being apparent that most of the national central banks were active across a broad range of jurisdictions.
One said that they were buying were still concentrating on the short end of the curve, in one to three year paper, although picking up longer dated tickets in peripheral jurisdictions, for example in seven and nine years. He said that their actions were not enough to tighten the market yet.
“The street was long inventory to start off with,” he added, “but the question is how long they can keep this up for.”
He also questioned how much impact continued buying of very short dated paper would have.
Another banker reported enquiries still focusing on short to medium term maturities, with a concentration on German-speaking countries and Iberia.
“It is very difficult to get trades executed given the lack of inventory,” he said.
Bankers said that ticket sizes have typically ranged from Eu5m to Eu20m, with the larger tickets biased towards peripheral jurisdictions.
The tone in the wider markets was meanwhile boosted by a report from Reuters this morning that the ECB could begin buying corporate bonds early next year.
Elsewhere, Suncorp-Metway has mandated ANZ, Citi, Deutsche and UBS for a five year Australian dollar covered bond issue.
Commonwealth Bank of Australia launched a seven year covered bond issue today (Tuesday), the first euro benchmark since CBPP3 buying began yesterday, and despite being outside the remit of the purchase programme it set a new tight for Australian covered bonds.
At 7bp over mid-swaps, the deal is the tightest ever euro benchmark Australian covered bond, beating a spread of 9bp over for a Eu500m tap of a National Australia Bank (NAB) seven year at the end of August, and well inside the previous tightest level for a new Australian benchmark, which was 17bp over for a five year ANZ deal in August 2013.
Leads CBA, HSBC, RBS and UBS went out with initial price thoughts of the 10bp over mid-swaps area for CBA’s deal this morning and then set guidance at the 8bp area (+/-1bp) when interest was in excess of Eu1bn. The re-offer was set at 7bp over on the back of a book of over Eu1.3bn, pre-reconciliation.
A syndicate official at one of the leads said the most relevant comparable was the NAB seven year (May 2021s), which he saw at 4bp over, bid, this morning. He also cited a May 2022 CBA issue at 6bp over, which he noted had a high cash price, and said that fair value was probably in the 5bp-6bp over range.
A syndicate official away from the leads said that pricing of 7bp or 8bp over would have been expected from the start, while another syndicate official away from the leads said that the 10bp area starting point made sense in the context of the Eu500m NAB tap.
He said that the level was in line with where the issue probably would have come last week, with CBPP3 therefore apparently yet to have an impact on primary market levels.
Another banker said that while Australian issuers were, despite being ineligible for CBPP3, nevertheless enjoying second order effects of the ECB’s actions given the overall positive momentum in the covered bond market.
The lead syndicate official agreed.
“Obviously there has been a lot of positive sentiment and momentum in general off the back of CBPP3,” he said. “Also, the fact that the LCR rules were clarified has helped clear up some of the eligibility question marks, which has helped the better backdrop.”
The eligibility of non-EEA covered bonds such as CBA’s as Level 2A assets was confirmed by the European Commission in a Delegated Act on the Liquidity Coverage Requirement on 10 October.
He noted that the last three euro benchmarks that have been issued have come from non-Eurozone banks that are ineligible for CBPP3.
“There is still a big question market of what the purchase programme means,” he said. “Maybe there is a bit of reluctance to be the first to test how it will work and there could be an advantage in coming second, third, or after.”
Another syndicate official agreed that, with spreads likely to grind tighter, there was no disadvantage in issuers waiting a week or two to issue – and that some are anyway awaiting the outcome of AQR over the weekend before coming to market.
Swedish issuers – again, outside the Eurozone – have also been cited as candidates for new issues as they come out of blackouts – with Swedbank having announced results this morning. However, several bankers said that suggestions a Swedish deal could come were speculative.
“It is like the Russian sub in the Baltic,” said one. “There may be a trade. There may not be a trade.”
Syndicate officials saw no significant change in the Eurosystem’s activities today, with it being apparent that the central banks are active across a broad range of jurisdictions. However, one noted that the tone in the wider markets had been boosted by a rumour this morning that the ECB could begin buying corporate bonds early next year.
Suncorp-Metway has mandated ANZ, Citi, Deutsche and UBS for a five year Australian dollar covered bond issue.
Commonwealth Bank of Australia launched a seven year covered bond issue today (Tuesday), the first euro benchmark since CBPP3 buying began yesterday, and despite being outside the remit of the purchase programme it set a new tight for Australian covered bonds.
At 7bp over mid-swaps, the deal is the tightest ever euro benchmark Australian covered bond, beating a spread of 9bp over for a Eu500m tap of a National Australia Bank (NAB) seven year at the end of August, and well inside the previous tightest level for a new Australian benchmark, which was 17bp over for a five year ANZ deal in August 2013.
Leads CBA, HSBC, RBS and UBS went out with initial price thoughts of the 10bp over mid-swaps area for CBA’s deal this morning and then set guidance at the 8bp area (+/-1bp) when interest was in excess of Eu1bn. The re-offer was set at 7bp over on the back of a book of over Eu1.3bn, pre-reconciliation.
A syndicate official at one of the leads said the most relevant comparable was the NAB seven year (May 2021s), which he saw at 4bp over, bid, this morning. He also cited a May 2022 CBA issue at 6bp over, which he noted had a high cash price, and said that fair value was probably in the 5bp-6bp over range.
A syndicate official away from the leads said that pricing of 7bp or 8bp over would have been expected from the start, while another syndicate official away from the leads said that the 10bp area starting point made sense in the context of the Eu500m NAB tap.
He said that the level was in line with where the issue probably would have come last week, with CBPP3 therefore apparently yet to have an impact on primary market levels.
Another banker said that while Australian issuers were, despite being ineligible for CBPP3, nevertheless enjoying second order effects of the ECB’s actions given the overall positive momentum in the covered bond market.
The lead syndicate official agreed.
“Obviously there has been a lot of positive sentiment and momentum in general off the back of CBPP3,” he said. “Also, the fact that the LCR rules were clarified has helped clear up some of the eligibility question marks, which has helped the better backdrop.”
The eligibility of non-EEA covered bonds such as CBA’s as Level 2A assets was confirmed by the European Commission in a Delegated Act on the Liquidity Coverage Requirement on 10 October.
He noted that the last three euro benchmarks that have been issued have come from non-Eurozone banks that are ineligible for CBPP3.
“There is still a big question market of what the purchase programme means,” he said. “Maybe there is a bit of reluctance to be the first to test how it will work and there could be an advantage in coming second, third, or after.”
Another syndicate official agreed that, with spreads likely to grind tighter, there was no disadvantage in issuers waiting a week or two to issue – and that some are anyway awaiting the outcome of AQR over the weekend before coming to market.
Swedish issuers – again, outside the Eurozone – have also been cited as candidates for new issues as they come out of blackouts – with Swedbank having announced results this morning. However, several bankers said that suggestions a Swedish deal could come were speculative.
“It is like the Russian sub in the Baltic,” said one. “There may be a trade. There may not be a trade.”
Syndicate officials saw no significant change in the Eurosystem’s activities today, with it being apparent that the central banks are active across a broad range of jurisdictions. However, one noted that the tone in the wider markets had been boosted by a rumour this morning that the ECB could begin buying corporate bonds early next year.
Suncorp-Metway has mandated ANZ, Citi, Deutsche and UBS for a five year Australian dollar covered bond issue.
