Demand for an SCBC seven year euro benchmark today (Thursday) was deemed underwhelming, but if its timing was queried its approach was considered realistic. A Yorkshire Building Society Eu500m five year was seen as benefiting from investors’ new liking for shorter maturities.

The two deals come after a more constructive start to the week – during which Toronto-Dominion Bank and then CFF and SEB executed new issues – was disrupted yesterday by a renewed sharp rise in yields that took the 10 year Bund above 1%. This was seen as having hit execution of an RBC Eu1bn seven year deal yesterday, which was priced in the middle of initial price thoughts on the back of weak demand.

The mandate for the new issue from SBAB subsidiary Swedish Covered Bond Corporation (SCBC) was announced early on in the execution of RBC’s deal yesterday morning, and as the Canadian deal struggled some bankers away from SCBC’s leads had suggested the Swedish deal be postponed.

However, citing strong investor feedback, at around 9:30 CET leads Citi, Danske, Goldman Sachs, HSBC and Société Générale began taking IOIs with initial price thoughts of the 2bp over mid-swaps area. That level was maintained as guidance, after the leads gathered orders of over Eu500m, and as the re-offer spread, with books closing at 1300 CET. The size of the deal and the final order book was not disclosed by the leads when The CBR went to press.

Citing underwhelming demand, the lack of spread tightening and relatively slow execution, some syndicate officials away from the leads said SCBC’s outcome proved market conditions remained difficult.

“They have not exactly struggled, but they have not enjoyed the usual levels of support,” said one.

Some were surprised that SCBC, having seen RBC’s result, did not wait for more stable conditions.

“For me, it was not the wisest move to go now,” said one.

However, another banker away from the deal said SCBC had taken an appropriate approach.

“It is a matter of fine-tuning,” he said. “We’re only talking about a few basis points.”

The banker noted that Swedish peer SEB on Tuesday launched a Eu1bn seven year issue with initial price thoughts of the flat area, before pricing at 3bp through mid-swaps, and suggested SCBC was right to be more conservative.

“As long as an issuer is realistic, like SCBC has been, and takes the view that they can move with the market and that they aren’t bigger than the market, then they can get a trade done,” he said. “SCBC didn’t try to achieve Tuesday’s pricing, and that was the right thing to do.”

A syndicate official at one of the leads agreed, stating that the issuer had been flexible in its goals and had worked with investors to find the right price.

“Yes it is not the best market right now, but you don’t know what will come,” he said. “In two weeks things could be much worse, and everyone could be looking back and saying ‘wow, those guys were smart’.

“The issuer was brave, flexible and showed their cards to investors and it has paid off,” he said. “This is a decent result.”

A syndicate official away from the leads saw SCBC’s October 2021s at minus 8bp, mid, and calculated that the new issue offered a premium of around 8bp.

Yorkshire Building Society gathered more than Eu850m of orders for its Eu500m no-grow five year issue, according to an update late in the execution process, the spread of which was tightened 2bp through execution for a final print of 4bp over mid-swaps.

Leads Danske, HSBC, Natixis and UniCredit skipped an IPTs stage to open books with guidance of the 6bp over mid-swaps area, gathering over Eu500m of orders in under an hour before final guidance was set at the 5bp area, plus or minus 1bp, with orders in excess of Eu850m, pre-reconciliation. The final book size was not disclosed by the leads when The CBR went to press.

“This went well,” said a syndicate official at one of the leads. “You are not in this market today because you want to get a really big deal or a really right price, and this is a good result for the issuer.”

Syndicate officials away from the leads said Yorkshire’s trade benefitted from a lower execution risk than SCBC’s because it had been roadshowed earlier this week, and suggested that the issuer had paid an appropriate premium in current conditions.

“It has gone well and seems to have received a fair amount interest,” said one. “They will have received positive feedback from investors, so why not go now?”

One said the deal offered a new issue premium of around 6bp based on the issuer’s secondary curve. Another estimated that fair value for the new issue was at around flat to 1bp over mid-swaps, seeing Yorkshire’s June 2021s at 2bp, bid.

“That sounds right for a name that is not that well known,” he said.

Bankers added that the contrasting receptions of the two deals showed that five years may be the new maturity sweet spot.

“We are in a rates bear market,” said one. “There is a generic buyer strike on the longer end. There is more potential in the shorter end. Investors have to do something with their liquidity but they do want to park it in the shorter end.”

The banker said he expected other issuers that had been considering new deals to continue to wait on the sidelines for more stable conditions next week, but said the market was still working.

“Issuers can, if they need, get something done, as these deals show,” he said. “Trades will work, but they will not be what we would in normal times consider to be particularly good trades.”