AIB Mortgage Bank is set to launch a new, seven year benchmark tomorrow (Tuesday) after pulling a 10 year in late November, and other issuers are expected to come to the market soon after the implications of victory in Greek elections for anti-austerity party Syriza are digested.

AIB Mortgage Bank’s plans come after it on 26 November pulled a 10 year euro benchmark amid deteriorating market conditions, with several other financial institutions having retreated from new issues in the same period.

The bank has switched maturity for its new issue, moving to the most popular segment so far this year, seven years. It has also changed its line-up of lead managers, mandating Barclays, BNP Paribas, HSBC, Commerzbank and UBS in place of Deutsche, JP Morgan, Lloyds, Morgan Stanley and Natixis. A banker at one of the latter said that he was surprised by AIB’s move, but added that a 10 year deal would not have been a good option today.

AIB last issued a euro benchmark covered bond in March 2014, a Eu500m March 2021 issue that a syndicate official said was at 18bp-19bp, mid, today. The last Irish benchmark was a Eu750m five year Bank of Ireland Mortgage Bank issue on 13 January that was priced at 20bp over mid-swaps and the syndicate official said is now quoted at 15bp-16bp, mid.

A syndicate official noted that the possibility of a Greek exit from the Eurozone and uncertainties surrounding negotiations Greece is expected to embark upon over debt restructuring may give market participants “a good excuse” to take profits and turn into a wait-and-see or even risk-off mode for a few days.

“The new political situation in Greece is not a surprise, but at the same time it was not fully priced in,” he said. “We don’t expect financial institution issuers to rush in and tap the primary markets en masse despite the global spread tightening observed on the back of Draghi’s sovereign quantitative easing announcement on Thursday.”

Another syndicate official was more upbeat, saying that the market seems to have taken Sunday’s result in its stride, noting that while Spanish and Italian yields were a little higher today (Monday), this followed a rally at the end of last week, after the unveiling of the ECB’s QE plans. Covered bond issuance is unlikely to be affected, he added.

“Greece is obviously struggling a little in terms of their outright yields, but it’s nothing really to concern ourselves with over here,” he said. “I think there will be ongoing volatility until everything is locked in, with regards to negotiations around austerity and the Troika, but I don’t think that’s going to stop any issuance from happening.

“The good thing is, I think Draghi’s impact on Thursday made this a bit of a non-event. The support is there for the peripherals, the support is there for the market backdrop, the support is there for yields – the support is definitely there from the ECB.”

Another syndicate official agreed that the market did not seem to be significantly affected.

“Rates-wise I think we are pretty much where we were when we finished the show on Friday,” he said. “What I was told this morning is that the zero line in German Bund yields is now pushed to the Jan 21, which is quite dramatic. Apart from that it seems like a very quiet Monday session to me.”

He said that he expected the market to remain relatively subdued this week, with some jurisdictions in blackout.

“Given that we’ve seen quite a lot already this year, those who wanted to profit from early moving have probably done so already,” he added. “This leaves us a bit in the haze as far new trades are concerned. None of the candidates we are speaking to seem ready to move.”

Bankers nevertheless expect some mandate announcements, particularly after Nordea kicks off the latest quarterly reporting on Wednesday and others follow.

Photo: Syriza leader Alexis Tsipras; Source: FrangiscoDer/Wikimedia Commons