Erste has mandated for its first euro benchmark covered bond in almost three years, a 10 year deal that is expected to be launched tomorrow (Thursday) and which bankers said should prove interesting against a backdrop of widening in other Austrian bank paper.

Some Austrian banks have suffered from their exposure to Russia and related markets, with RBI at the centre of concerns that have flared up this week. Its CFO was yesterday (Tuesday) reported to have denied that it is planning to exit its Russian operations and needs to raise capital.

A banker said that RBI senior unsecured paper was 20bp-30bp wider today (Wednesday), for example, with other Austrian senior unsecured and subordinated debt also having trading down substantially. However, bankers noted that Erste’s exposure to Russia and related markets is limited and that it has been somewhat shielded from the widening.

Erste Group Bank today mandated HSBC, Natixis, RBS, UniCredit and itself to lead manage the 10 year euro benchmark, which is expected to be launched tomorrow after the leads have laid the groundwork today. The Austrian issuer’s last euro covered bond benchmark was a Eu1bn seven year launched in February 2012.

A syndicate official away from the leads said that a UniCredit Bank Austria January 2024 benchmark was today bid at 2bp over mid-swaps, while Raiffesien-Landesbank Steiermark June 2028 benchmark was bid at 6bp over. However, he noted that these issues trade at high cash prices and are squeezed, pointing out that a five year Bank Austria issue was bid at 1bp through mid-swaps, so the levels are not necessarily helpful.

A banker said that despite the deal coming from a “testing region”, he expected the new issue to benefit from typically good German and Austrian support.

Although the primary market for financial institutions was quiet today, market conditions were said to remain supportive. A syndicate official said that although the senior and subordinated markets were not in the greatest of shape, covered bonds were fine, noting that benchmark euro covered bonds launched yesterday for AIB Mortgage Bank and Bankinter were tightened some 5bp on the break.

Another banker attributed the lack of activity to a drop-off after the busy start to the year in senior unsecured and then covered, combined with some banks being on the point of leaving blackout periods and others entering theirs, and overall limited funding needs.

“It’s quite a healthy breather,” he added.