Deutsche Kreditbank and Sparebanken Vest encountered modest demand for Eu500m deals today (Tuesday) despite offering what bankers deemed appropriate premiums, continuing a weaker trend in a pre-Fed market. Crédit Mutuel Arkéa is expected with a Eu500m issue tomorrow.

Noting spread tightening of only 1bp versus IPTs and relatively low levels of demand in the two deals, syndicate officials said a slowdown in demand that had affected execution yesterday had continued, after deals from Kutxabank and Bank of Montreal were only marginally oversubscribed on Monday, with the latter being priced at the same level as IPTs.

“In both deals there are signs of indigestion,” said one. “With a rates announcement expected during a Fed meeting on Thursday people are taking a cautious approach, as they are still unsure what to expect, and with the amount of recent supply on top of that demand looks to be slowing down.”

Deutsche Kreditbank (DKB) leads BayernLB, Commerzbank, Natixis, UniCredit and WGZ priced the Eu500m eight year public sector Pfandbrief at mid-swaps minus 11bp – in the middle of guidance – on the back of orders over Eu500m. The deal had been launched with IPTs of minus 10bp before guidance was set at minus 11bp plus or minus 1bp. The book closed at over Eu500m, according to a syndicate official at one of the leads.

“I think this is a solid trade in the current environment,” he said. “It is not immensely oversubscribed but in the end it was a trade, and that is the best you can hope for in this rather torrid market.”

The lead syndicate official said the spread had been maintained at 11bp after some accounts had limited their orders.

“There are still some investors that want to take on risk before Thursday, but there are clearly more that are eyeing the Fed meeting and that poor secondary performance,” he added.

Syndicate officials at and away from the leads said fair value for the new issue was around minus 20bp-18bp based on the issuer’s secondary curve, with a lead syndicate official citing comparable trades from the issuer and parent BayernLB as all being quoted at around minus 20bp, mid.

“That concession might be slightly more than Pfandbriefe were offering last week, but I think it is still reasonable,” the lead syndicate official said.

Syndicate officials away from the deal agreed, stating the leads had adopted the right starting point.

Sparebanken Vest Boligkreditt leads Deutsche, HSBC, ING and Nordea launched the Norwegian Eu500m no-grow five year issue with initial price thoughts of 8bp over mid-swaps. This level was maintained for guidance, with the leads having received IOIs of around Eu500m, before the re-offer was fixed at 7bp on the back of books of over Eu600m. The books closed at above Eu650m.

Syndicate officials away from the leads said fair value for the new issue was around flat to mid-swaps, based on the issuer’s secondary curve.

Noting that Sparebanken Vest’s leads had adopted a similar execution pattern to those of Deutsche Kreditbank, they said the pricing was appropriate, and again cited the deal’s performance as being caused by market conditions rather than the approach of the issuer and leads.

“These two deals are underwhelming, and all today’s and yesterday’s results are some way back of what issuers were able to achieve earlier in the month,” said one. “Across corporates and senior deals, too, it has been a disappointing session.

“Not just in the covered space per se, but overall, there is an indigestion of new issues after reasonably heavy supply in the first half of the month.”

Syndicate officials said all deals issued in the FIG space yesterday had widened this morning – some significantly, with a Eu500m three year senior unsecured issue from Banco Popolare being marked some 20bp wider.

One syndicate official said poor secondary liquidity would also likely convince some investors to take a break, but added that more frontloaded supply should be expected ahead of Thursday’s Federal Reserve meeting, with a number of issuers having announced mandates.

“These deals might make some issuers think twice about the sizes they can print and how much they have to pay up, but they certainly won’t shut down the market,” he said, “We will still see some degree of issuance this week.”

Another syndicate official agreed.

“Things are still ticking along with two deals per day, so we shouldn’t be too worried yet,” he said.

Crédit Mutuel Arkéa Home Loans SFH this morning announced a mandate for a new Eu500m seven year issue, which is likely to be launched tomorrow according to a syndicate official at one of leads BBVA, Crédit Agricole, Crédit Mutuel Arkéa, DZ and Raiffeisen Bank International.

The lead syndicate official cited the issuers April 2021s as trading at minus 9bp, bid, and its October 2021s at minus 8bp. He also noted that 2022 and 2023 issues from CM-CIC, Société Générale and BPCE were quoted at minus 11bp-8bp.

The French issuer’s most recent euro benchmark was a Eu500m 10 year issue in June 2013.

Meanwhile, SR Boligkreditt will tomorrow (Wednesday) conclude a roadshow ahead of an expected euro benchmark issue, but a syndicate official at one of leads Commerzbank, LBBW, JP Morgan, Société Générale said the issuer would be unlikely to tap a narrow window before the Fed meeting.