A new back-up in rates that took the 10 year Bund yield above 1% today (Wednesday) hit execution of a RBC seven year euro benchmark, with pricing unmoved from IPTs and the last book update a modest Eu750m. Bankers suggested a mandated SCBC seven year and other plans be delayed.

Royal Bank of Canada leads Crédit Agricole, Danske, Deutsche and RBC launched the deal this morning after having announced the mandate for the new issue early yesterday (Tuesday), following a successful renaissance of euro benchmark covered bond issuance on Monday in the form of a Eu1.25bn five year issue from Toronto-Dominion Bank, which was followed yesterday by a Eu1.5bn three year CFF issue and a Eu1bn seven year SEB.

Initial price thoughts for RBC’s deal were the 2bp area and after a couple of hours during which Eu625m of IOIs were taken the level was retained as guidance. Two hours later, with the book cited as being over Eu750m, the level was fixed at 2bp over. The final size and order book were not available as The CBR went to press.

Euro-denominated benchmarks from RBC and other Canadian issuers have typically been at least Eu1bn.

“That is the weakest update I have seen from a high grade issuer’s trade for some time,” said a syndicate official away from the leads. “It proves that people’s gut feeling that the market is not good enough is correct.”

The syndicate official said that the market had deteriorated and sentiment weakened since TD, CFF and SEB successfully completed their deals earlier, noting the move in the 10 year Bund yield.

“I don’t think it is a credit or a new issue premium story,” he said. “The momentum just isn’t there.

“Investors are worried about rates and that casts a long, dark shadow.”

He estimated that the deal offered a new issue premium of around 8bp-9bp, seeing Bank of Nova Scotia September 2021 paper at minus 7.5bp.

“That looks fair and reasonable,” he said, “but is a fair and reasonable new issue premium enough right now?”

Another syndicate official away from the leads cited tough market conditions and the level of supply already brought to the market this week as being responsible for the apparently subdued demand for the deal.

“We saw deals go well yesterday, but TD has taken what people wanted to buy and SEB was helped mostly by its absence from the market,” he said. “Right now, deals are not done easily.

“You can’t pile them up like this.”

The syndicate official saw fair value for RBC’s new issue as being around minus 5bp, based on the issuer’s curve.

“But that is not paying up enough in this market,” he said. “I think right now, you might have to pay a premium of maybe even 10bp. That is just too much. That is the same premium as some of these guys would be paying on a senior transaction.”

However, another banker away from the deal, noting that TD launched its shorter dated five year with initial price thoughts of the flat to 2bp area, suggested that RBC should have opened wider.

“I think their starting point was overly aggressive,” he said, adding that a starting point of at least the 3bp or 4bp area would have been his recommendation.

“That would at least have shown some curve.”

SBAB subsidiary SCBC this morning announced a mandate for a euro-denominated seven year deal – via leads Citi, Danske, Goldman Sachs, HSBC and Société Générale – to be launched “in the near future, subject to market conditions”.

Syndicate officials away from the deal said they expected the issuer to hold off on launching the deal until at least later in the week, because of the back up in yields and RBC’s challenging execution.

“If things stay like this, it will be tricky for them to launch tomorrow,” said one. “If I were them, I would take a step back.”

A syndicate official at one of SCBC’s leads said that no decision had yet been made on when to launch the deal, and that they were assessing the market. SCBC’s last euro benchmark was a Eu1bn seven year issue in September 2014.

Yorkshire Building Society meanwhile followed up a roadshow that finished yesterday by early this afternoon announcing the mandate for a Eu500m no-grow five year benchmark covered bond. The last UK euro benchmark was a Eu1bn seven year issue for Abbey on 14 April at 1bp over mid-swaps, while Yorkshire’s last euro benchmark was a Eu500m seven year in June 2014.

Bankers said a range of other issuers are looking at the market – and suggested this might have prompted RBC and SCBC to move ahead even though conditions were not ideal – but said those considering new issues would likely take a step back.

“We need a consolidation in rates, then the market can come back,” said one. “Right now my easiest advice to issuers would be to do nothing.

“Today is the day for more questions, not for answers.”