NordLB Luxembourg launched a Eu500m three year issue today (Thursday) that, according to bankers, offered a slim premium and found good demand considering its ineligibility for CBPP3 and preferential treatment under CRR. Hopes for further supply next week have meanwhile risen.

The benchmark deal is the first from the issuer since NordLB Luxembourg and NordLB Covered Finance Bank (CFB) merged as a specialist covered bond bank under Luxembourg law earlier this year. The issuer has sold one other benchmark this year, as NordLB CFB, a Eu500m five year priced at 8bp over mid-swaps in March.

The new issue took euro benchmark supply for the week to Eu2.5bn, after Eu1bn deals from SEB and Banco Sabadell on Monday and Tuesday, respectively. It also followed a break in issuance on Wednesday, when market participants were awaiting the outcome of an FOMC meeting.

Leads BNP Paribas, Commerzbank, DZ, NordLB and UBS launched NordLB Luxembourg’s Eu500m no-grow three year lettres de gage publiques with guidance of the 12bp over mid-swaps area, before moving to revised guidance of the 10bp-12bp area with books in excess of Eu500m. The re-offer was then set at 10bp, with the book closing at “well over” Eu600m.

“It went well and in line with expectations,” said a syndicate official at one of the leads. “In terms of the oversubscription and the move from the IPTs to the re-offer, it is in line with most of the deals we have seen in the last few weeks.”

A syndicate official at another of the leads agreed, noting that the deal is not compliant with CRR criteria necessary for preferential treatment nor eligible for the ECB’s third covered bond purchase programme.

“It therefore does not benefit from all these demands that other deals do, so, considering that, and given where longer dated non-CBPP3-eligible deals have priced recently, this is a good result.”

Syndicate officials said NordLB CFB March 2020s were quoted at around the high single-digits, mid, putting the new issue premium of today’s deal at around 5bp, which, they noted, was at the tighter end of premiums seen in recent issuance.

A syndicate official away from the leads said this was reflected in the size of the order book.

“The pricing does look a touch aggressive compared to what we’ve seen,” he said, “but with a Eu500m no-grow you can take that approach, and for a non-CBPP3, non-CRD deal this is comfortably oversubscribed.”

One of the lead syndicate officials said that the premium was justified by the deal’s shorter maturity.

“The concession might feel slim comparatively,” he said, “but for a three year you should expect a smaller new issue premium.”

Syndicate officials added that the new issue’s spread looked attractive as it offered a pick-up of 20bp-30bp versus German Pfandbriefe, with some seeing German three year issues quoted at around minus 10bp, bid, and others citing NordLB 2019s quoted at around minus 19bp, mid. They noted this was roughly in line with the pick-up offered by NordLB Luxembourg’s March 2020 issue.

The issuance is expected to be rated AAA by Fitch and AA-by S&P.

Syndicate officials said that deals in other markets were going well today, albeit at high new issue premiums, with a senior unsecured issue from Santander Consumer Finance seen as being particularly well received.

They noted that the conclusion of the FOMC meeting yesterday (Wednesday) appeared to have had little impact on the market, but said issuance conditions felt better than earlier in the week.

“The Fed’s impact on sentiment was neutral to slightly positive, I’d say, as it went as expected but it removed a bit of uncertainty and people are happy that they took out talk of a global slowdown,” said a syndicate official. “It feels like a strong backdrop, and these deals going through should help us get off to a constructive start next week.”

Another syndicate official agreed, adding that while further issuance is unlikely tomorrow (Friday), he was confident that euro benchmark supply next week would surpass this week’s Eu2.5bn.

“I feel good about next week,” he said.