Healthy new issue premiums helped BBVA, CFF and LBBW get Eurozone benchmark covered bond issuance off to a strong start today (Monday), with real money demand gaining at the expense of CBPP3 participation, and at least three mandates in the pipeline for launch tomorrow.

Before today only one euro benchmark had been launched this year, a Eu1.25bn seven year issue for Australia’s Westpac last Thursday, but issuance reached Eu2.75bn today and is set to rise further.

Bank of Ireland Mortgage Bank is set to launch a five year euro benchmark tomorrow (Tuesday), having mandated BNP Paribas, Lloyds, Morgan Stanley, Natixis and Société Générale. The deal will be the first for an Irish issuer since AIB Mortgage Bank on 26 November pulled a planned 10 year benchmark in a deteriorating market in which several other financial institutions were canning new issues.

A syndicate official at one of Bank of Ireland’s leads said that the new issue is coming in “a very different maturity and a different market”. He noted that Bank of Ireland’s March 2019s were trading at 13bp, mid, this morning and its October 2020s at 15bp. A banker away from the leads said that he expected a spread in the range of 23bp-25bp over.

Banca popolare dell’Emilia Romagna (BPER) is also expected tomorrow, with a seven year obbligazioni bancarie garantite benchmark via BNP Paribas, Natixis, Nomura, RBS and UniCredit. The last euro benchmark of 2014 was a Eu1bn seven year issue for Italian peer Cariparma, which was launched at 25bp over mid-swaps and was today quoted at 25bp, bid, according to one of its leads.

And WL Bank is due with a quick follow-up to a Eu500m five year benchmark launched on 27 November, having mandated BayernLB, DZ, LBBW, UniCredit and WGZ as leads for a Eu500m no-grow Hypothekenpfandbrief in the rare 15 year maturity.

And alongside the three mandates already announced, others are expected to emerge – amid continued busy activity in the senior unsecured market.

“I think it’s encouraging to the extent that it’s all working and the market is liquid and deep enough to sustain these transactions,” said a syndicate banker. “I would assume that there would be a lot of traffic – as there is already today – on Tuesday and probably on Wednesday.

“People are trying to get their transactions done sooner rather than later as you never know when things are going to worsen.”

Another syndicate official said that he had not expected today to be so busy, but that it had not affected the execution of deals given that they were for varied names and in different maturities. He added that he had originally expected one or two deals out of today’s overall issuance to have come on Thursday.

Syndicate officials highlighted two aspects of today’s new supply: the level of new issue premiums and CBPP3 participation.

“Orders are slightly below those we had at the end of November and allocations will be lower,” said a syndicate official involved in today’s deals about central bank involvement. “There are many more final investors involved and higher levels of oversubscription.

“That is much more supportive of new issues and clearly good news.”

Banco Bilbao Vizcaya Argentaria built a final order book of Eu2.25bn for a Eu1.25bn seven year benchmark at 25bp over mid-swaps via leads BBVA, Commerzbank, Crédit Agricole, Natixis and Nomura. Initial price thoughts were the 30bp over mid-swaps area and guidance was the 27bp area.

A syndicate official at one of the leads said that the CBPP3 order size was in line with levels seen at the end of last year, but that given strong participation from private investors and increased granularity its percentage in allocation terms would be lower.

He attributed the higher real money participation in the primary market to fresh money being available at the start of the year and to a healthy correction in new issue premiums – which he put at 5bp for BBVA.

A syndicate official away from the leads described the execution of BBVA’s deal as “slick”.

“BBVA did the appropriate thing by going out in the 30bp area, even when their bonds are being quoted at around plus 20bp,” he said. “It’s a sensible approach to pay a small new issue premium of 3bp-5bp depending on how you look at it, and tightening in, getting a big order book, pricing at a not ridiculous price like we know some other Spanish issuers have done in the past.

“I think it was the right trade to get done and that opened the doors for other issuers, like Bank of Ireland and BPER. They took the lead and others have followed.”

A Eu500m four year LBBW benchmark offered a new issue premium of 3bp-4bp, according to a syndicate official at one of the leads, with pricing at 16bp through mid-swaps after guidance of the less 15bp area. He said that a Eu1bn November 2018 Helaba issue issued on 20 November was at minus 21bp, putting fair value for a new LBBW four year at around 20bp-19bp through.

“Obviously market conditions have softened a little bit since Helaba and we’ve seen that new issue premiums are necessary at the beginning of this year,” he added.

He noted that Helaba had also been able to offer a 0.125% coupon, while LBBW paid 0.1% – “the first time there has ever been such a low coupon for a benchmark,” he said.

“We are coming into territory where every basis point hurts,” he added. “There were some orders limited at 15bp, not too many, and although they all came down to 16bp, if we had gone for 17bp there would have been more pushback.”

He said that the issuer was happy to pay the new issue concession to achieve a successful result, which also meant not only relying on the CBPP3 bid but having a deal with real money participation. Although he could not give exact numbers on Eurosystem participation, he said that he was surprised that the CBPP3 order was less than 50% of the total, whereas it had in many cases been above 50% and up to 70%. He also noted that the Eurosystem was treated like other accounts in the final allocation and hence would take much less than 50% given the order book was Eu1.2bn.

LBBW’s leads were Commerzbank, ING, Natixis and LBBW.

Compagnie de Financement Foncier (CFF) issued a Eu1bn 10 year at 7bp over mid-swaps, following IPTs of the 10bp area and guidance of the 8bp area, and on the back of a Eu1.4bn order book.

A syndicate official away from the leads said that the spread was in line with what he would have expected, while another agreed, adding that yield considerations were more of an issue in the longer maturity.

He noted that the level of oversubscription was not as high as for BBVA or LBBW, and a lead syndicate banker pointed out that CFF was a more regular issuer. The French issuer sold four euro benchmarks last year, including a Eu1bn five year benchmark at 5bp through mid-swaps in September and a Eu1.5bn seven year at the same level in November.

Lloyds Bank added to £1.6bn of short dated FRN supply in sterling last week with a £1bn three year floater priced at 19bp over mid-swaps today. The level is the same as that at which Barclays priced a deal of the same size and maturity last Monday. Barclays, Lloyds, Nomura and Standard Chartered were leads.