Strong demand for Belfius and BPCE benchmarks today (Tuesday) showed the covered bond market to be in fine fettle, while the execution of a rare, Eu700m HSH Nordbank ship Pfandbrief was seen as a sign of the times. A Eu300m 10 year Hypo Landesbank Vorarlberg deal is due tomorrow.

Today’s three deals were announced yesterday (Monday), with Belfius executing a Eu1bn 10 year, BPCE SFH launching a Eu750m seven year, and HSH Nordbank its Schiffspfandbrief after taking indications of interest yesterday.

“The market’s still in very good shape,” said a syndicate official away from today’s supply. “It is good to see demand for all of them, showing the strength of the primary market.”

Leads Banca IMI, Danske, Deutsche, Natixis and Santander went out with initial price thoughts (IPTs) of the mid-swaps plus 5bp area for the BPCE SFH transaction, which was a Eu750m no-grow. After taking over Eu1.5bn of indications of interest guidance was set at the 3bp area, and the re-offer at 1bp over on the back of a Eu3.1bn order book.

A syndicate official away from the leads said that BPCE’s deal was the pick of today’s issuance. He attributed the strength of demand to the deal’s no-grow status.

“As soon as you declare the size right away, as they did here, there is no risk that the size will be overdone and investors come in,” he said.

He said that the result was a limited concession to the issuer’s curve, although he noted that gauging the exact size of the new issue premium was tricky, with the issuer’s closest outstandings carrying off-market coupons. He said that the most on-the-run issue was a long 10 year, February 2025 deal, that is bid at plus 2bp, and also cited fellow BPCE group member CFF 10 year paper bid at plus 7bp and seven year paper at minus 3bp. Another syndicate official away from the leads put the new issue premium closer to 4bp, suggesting that the pricing approach had been quite conservative, but not out of line with recent supply.

Belfius went out with IPTs of the 10bp-12bp area via leads Belfius, Citi, Crédit Agricole, Deutsche and LBBW, with a Eu1bn size in mind from the outset, according to a syndicate official at one of the leads. Guidance was then set at the 9bp area on the back of Eu1.5bn of indications of interest, and the re-offer at 7bp after books topped Eu1.75bn, with final demand totalling Eu1.8bn.

The deal is only the third 10 year euro benchmark of 2015, and comes after a successful Erste Bank Eu500m 10 year on Thursday that attracted almost Eu2bn of demand. Syndicate officials said that Belfius today underlined the buoyancy of the 10 year part of the curve.

“It was one of the areas of the market where we were not so sure if it was right to approach it,” said a banker away from the leads. “At the beginning of the year the traditional investor base showed itself to be rather hesitant with yields below 1%.

“However, Erste showed that you can get a strong result and now Belfius has confirmed this.”

The IPTs of 10bp-12bp were considered to have been on the safe side, but bankers said that the aim of taking Eu1bn out of the market partly explained this, and noted that the 4bp move from the middle of IPTs, i.e. 11bp over, to the 7bp re-offer was typical of recent supply. With Belfius having a 2024 issue outstanding bid at 4bp over, the new issue premium was put at around 3bp.

A lead syndicate official noted that a pick-up of around 15bp over Belgian government bonds has also proven attractive.

HSH Nordbank priced its Eu500m ship Pfandbrief at 33bp over mid-swaps, following IPTs of the mid-30s and guidance of 33bp-34bp over. Barclays, Deutsche, HSH, JP Morgan and Natixis are understood to have taken some Eu700m [corrected from Eu300m] of orders for what is only the second benchmark covered bond backed by shipping collateral.

A syndicate official said that the long execution period – with indications of interest having been taken yesterday – made sense given the narrow scope for the product.

“Some investors don’t value the collateral at all, and for others it is just the icing on a senior unsecured cake,” he said. “But there are few that view it as a fully-fledged covered bond

“They nonetheless got a Eu700m book,” he added. “If there was ever a time to sell an off-the-beaten-path asset class, it’s now.”

Another agreed.

“Three to six months ago you never would have expected something like this to work in benchmark format,” he said.

He said that the level of 33bp over was closer to where a potential HSH Nordbank senior unsecured issue would come, putting the spread up to 40bp wider than where a three year mortgage Pfandbrief would come.

“It is a reasonable pick-up if you consider the challenges of the collateral,” he said. “It is a good sign that there are funding opportunities with alternative collateral types – although I’m not sure if we’ll see anyone else follow.”

Vorarlberger Landes- und Hypothekenbank (Hypo Landesbank Vorarlberg) is in the pipe for tomorrow with its Eu300m 10 year mortgage Pfandbrief via DZ, LBBW and RBS. It comes after Erste’s 10 year on Thursday, while Hypo Tirol on 1 October sold a sub-benchmark, a Eu300m five year debut public sector Pfandbrief.

“It should work,” said a syndicate official away from the leads, suggesting that it might have to pay a pick-up of 3bp-5bp over the issuer’s larger peers.

Little other supply is expected this week, with blackout periods an issue for many financial institutions. Many Nordic and Spanish issuers have, however, announced results and, although the basis swap is working against non-Eurozone Nordic issuers, Nordea Bank Finland is considered a likely candidate for a new benchmark.