Demand for a dual-tranche, covered and senior unsecured, deal for NAB proved disappointing today (Monday), but bankers said takeaways for other issuers are limited because of the covered bond’s CBPP3 and ECB repo status, and are bullish about the prospects of further supply this week.

National Australia Bank’s deal was brought to the market amid supportive issuance conditions, syndicate officials said, after a week in which five benchmark issues, totalling Eu4bn of supply, were comfortably oversubscribed, and expectations for new issuance were high.

Leads Barclays, BNP Paribas, Citi and NAB launched the euro-denominated seven year covered bond with initial price thoughts of the 32bp area, before maintaining that level for guidance with the books at Eu800m. The deal was then re-offered at 32bp, with the book over Eu850m at the last update, and sized it at Eu750m.

The leads also reopened NAB’s March 2019 senior unsecured FRN with IPTs of the 53bp over three month Euribor area, before maintaining that level as guidance with books of around Eu300m. The re-offer was then set at 50bp, with the book over Eu300m.

Syndicate officials away from the leads said the investor response to both tranches appeared disappointing, noting in particular that NAB tends to print Eu1bn benchmarks in the euro covered bond market.

“They have still been able to print Eu750m, which certainly isn’t a horrible outcome,” said one. “But it isn’t amazing.”

Syndicate officials suggested that demand for the covered bond issue was modest because the Australian paper is ineligible for the Eurosystem’s covered bond purchase programme and its ECB repo status, and because the deal offered a premium only slightly higher than recent core deals. They said the deal offered a premium of 10bp-12bp, seeing NAB March 2021s and January 2023s trading in the low 20s, while recent ECB-eligible deals offered premiums of 5bp-7bp.

“From an outright number perspective, this looks good,” said one syndicate official. “For a double-A credit, triple A name, 32bp for a seven year looks great.

“But it’s only 10bp new issue premium, and you’ve got ECB-eligible and core names paying only slightly less, so is that enough?”

Some syndicate officials also suggested the maturity was a factor, with the seven year part of the curve having seen heavy supply.

“This sends a signal to the market that the seven year part of the curve has been overdone,” said one. “For me, the shorter and longer ends of the curve are where the depth is.”

Syndicate officials said, however, that the dual-tranche format of the deal, while unconventional, made sense.

“The senior market is in good shape and ready to receive deals after a fairly quiet period, and the covered market is coming off the back of a supportive week, in which five deals were all well-received and tightened afterwards,” said one. “They were right to tap both markets today.”

Another syndicate official agreed.

“The two deals have very different investor bases, so there shouldn’t have been any cannibalisation and it’s unlikely that had an impact on the demand they received,” he added.

The senior FRN tranche was seen as offering a premium of 5bp-8bp, based on the issuer’s secondary curve.

Syndicate officials said that they did not expect NAB’s modest reception to dissuade issuers from coming to the market this week, as the takeaways from the deal are limited for non-Australian issuers.

“In spite of this deal, I’m not at all bearish on the covered bond market,” said one. “The tone feels good and I would expect activity to pick up later in the week.”

With NAB the only issuer active in the benchmark covered bond market today, syndicate officials said they were surprised that other new issues had not been brought forward, after the market had reacted little to a US non-farm payroll announcement on Friday.

They also noted that windows for issuance would soon begin running out as the year end approaches, while on Wednesday banks will be closed in France for Armistice Day.

“The calendar only gets more challenging later in the week, and the tone feels strong, so I don’t see why issuers have hesitated today,” added one.

Vorarlberger Landes- und Hypothekenbank (Hypo Landesbank Vorarlberg) this morning announced a mandate for a Eu200m tap of its Eu300m February 2025 issue. A syndicate official at one of leads DZ, Erste and LBBW said the tap will likely be launched tomorrow (Tuesday), subject to market conditions.

The original mortgage-backed sub-benchmark issue was priced at 7bp over mid-swaps in February.