CBA sold a Eu1.25bn dual-trancher and TD a £400m three year FRN today (Wednesday) at levels bankers said highlighted “eye-watering” spread widening yet still represent attractive funding. KSK Köln is expected tomorrow with a sub-benchmark, but an awaited Kookmin dollar is yet to emerge.

Today’s new issues were launched into a relatively stable market, syndicate officials said, with supportive issuance conditions prevailing after European equities rebounded and credit indices closed tighter yesterday afternoon, before CBA announced its deal, the first benchmark Australian covered bond of the year, at around 10.00 CET this morning.

Commonwealth Bank of Australia leads CBA, BNP Paribas and UBS launched the five year tranche with guidance of the 35bp over mid-swaps area and a 15 year tranche with guidance of the 50bp-52bp area.

The size of the five year tranche was then set at Eu750m and the 15 year at Eu500m, with the spreads fixed at 33bp and 50bp, respectively. The book for the five year tranche closed at over Eu1bn and the 15 year tranche at over Eu700m.

“It’s an encouraging result,” said a syndicate official away from the leads. “They managed to tighten in from the pricing range and I’m sure they’ll be happy with the size of both books, especially for the 15 year given recent difficulties in the longer end.”

Another syndicate official away from the leads said the demand for the 15 year tranche shows that longer-dated deals can be done.

“There is clearly a preference for the intermediate tenors right now – which have so far this year offered better executions and more scope to for price movement – but then yesterday the European Financial Stability Facility tapped an issue that included a 2045 tranche and that went very well,” he said. “This was an interesting test of the long end today.”

Syndicate officials said the five year tranche offered a new issue premium of around 10bp, seeing CBA November 2021s at 26bp, mid. They said the premium offered by the longer dated tranche is more difficult to estimate, as CBA’s curve is more limited. They said the concession was in the mid to high single-digits, seeing NAB 2027s at 40bp, mid.

“That’s a more limited premium than the five year, but the longer tranche will no doubt offer quite an attractive yield,” said one.

Some syndicate officials away from the leads said it was surprising that CBA had been willing to come to the euro market, because of a substantial widening in spreads. They noted that Australian covered bond spreads are currently at their widest since 2012, when in December that year NAB priced a Eu1bn 10 year issue at 37bp over mid-swaps and in the July Westpac priced a Eu1bn seven year at 55bp.

“Although CBA’s spreads look entirely reasonable versus secondaries, they are quite eye-watering,” said one syndicate official. “They show the direction that the market has been going.”

The syndicate official noted that CBA’s last euro benchmark covered bond was priced at 7bp in October 2014, and that Westpac in July 2015 priced a July 2021 issue at 17bp.

“Spreads have almost doubled, but the really interesting thing is that these issuers are comfortable enough printing at those levels,” he said. “The key is that these are still appealing levels relative to global funding levels.”

The syndicate official said the five year tranche’s spread of 35bp over mid-swaps is equivalent to 77bp over dollar Libor, and noted that CBA’s July 2020 dollar bonds are quoted in the low 80s. He estimated that a new CBA five year in US dollars would come at around 90bp over Libor.

“It’s more than 10bp saving in the euro market,” he said.

Toronto-Dominion leads Deutsche, Lloyds and TD priced the Canadian bank’s three year sterling FRN at 48bp over three month Libor, in the middle of IPTs and guidance, and set the size at £400m on the back of books over £400m.

“This is a positive result in a reasonably challenging backdrop,” said a syndicate official at one of the leads. “The sterling market is obviously difficult in terms of capacity and so we’re pleased with the evolution of the book and its granularity, as well as the size we managed to take out of the market.”

A syndicate official away from the deal agreed that TD had done well to print £400m noting that Nordea and Bank of Nova Scotia each printed £400m deals in better conditions on 6 and 7 January, respectively.

“This looks good, and if they can get the size achieved by BNS and Nordea in what is now a trickier environment that’s a good result,” he said.

Syndicate officials noted that spreads have backed up in the sterling market, with each three year sterling FRN this year being priced wider than the deal before it. Lloyds opened the market on 5 January with a £750m issue priced at 38bp, with Nordea following at 42bp and BNS at 45bp. BNS’s issue was seen at 47bp-48bp, bid, before TD’s deal was announced.

“It’s the same story as CBA, in that with this deal you can see the direction of travel in spreads has not been brilliant for issuers,” said a syndicate official away from the deal. “It’s also not brilliant for investors, who might have participated in previous transactions, and will be wondering if this widening will continue and whether they should wait for more stabilisation to get on board.

“But again, for an international issuer these are attractive levels.”

The syndicate official noted that fellow Canadian issuers Bank of Montreal and Bank of Nova Scotia earlier this month priced Eu1.5bn three year issues at 12bp over mid-swaps, a spread he said was equivalent to around 63bp over dollar Libor.

He estimated that TD’s new sterling issue was equivalent to around 53bp over dollar Libor.

The deal is TD’s second public covered bond of the year, following a Eu1bn five year issue on 5 January.

Kookmin had been expected by some market participants to launch a US dollar 144A issue this week, after having on Monday announced that it was taking IOIs and requesting feedback on the deal’s expected five year maturity. ANZ, BNP Paribas, Commerzbank and DBS have the mandate.

However, bankers at the leads said the Korean issuer is still monitoring the market.

Syndicate officials away from the deal said that it is unusual for the deal not to have been launched yet.

“It is a little unconventional to wait so long,” said one.

Another syndicate official away from the leads suggested that recent supply in the US dollar senior unsecured market was persuading the issuer to hold off.

“I think that is making it more challenging to ascertain where secondary liquidity is in senior unsecured Asian issuer spreads,” he said. “Kookmin’s covered bond pricing is unlikely to be derived from those senior spreads – by applying a differential of something like 15bp-20bp benefit for the collateral.

“I suspect the issuer feels that at the moment the covered bond spreads they are being asked to pay are closer to senior spreads than what they would like, and that they are waiting for more stability in the senior market so they can derive a tighter covered bond price thereafter.”

Syndicate officials said that further benchmark covered bond supply is likely tomorrow if market conditions remain relatively stable, adding that they do not expect an FOMC meeting today to substantially change market sentiment.

Kreissparkasse Köln today announced a mandate for a sub-benchmark euro eight year issue, with leads BayernLB, KSK Köln, LBBW and WGZ.

A syndicate official at one of the leads said the deal is expected tomorrow, subject to market conditions. The lead syndicate official saw KSK Köln March 2022s at minus 1bp, mid, and May 2023s at 2bp.