KBC today (Tuesday) drew the most demand of any covered bond benchmark this year, some Eu3.5bn for a Eu1.25bn long six year that bankers noted offered an attractive Eurozone spread, while UniCredit priced the latest German deal. Sparebanken Sør is meanwhile eyeing a euro debut.

From within the Eurozone, only peripheral and Austrian issuers have this year offered a higher spread in the medium part of the curve than the 19bp over mid-swaps paid by Belgium’s KBC Bank on today’s benchmark – equivalent to around 60bp over Bunds – although French issuers have paid more for issues of 10 years and longer.

Leads Crédit Agricole, Commerzbank, Credit Suisse, KBC and LBBW went out with initial guidance for KBC’s September 2022 deal of the 23bp over mid-swaps area, then revised this to 20bp plus or minus 1bp, will price in range, with the books approaching Eu3bn, before re-offering the paper at 19bp on the back of some Eu3.5bn of orders, pre-reconciliation.

A syndicate official away from the leads called it a “star trade”, noting that it had attracted such strong demand at the same time as keeping a lid on the new issue premium. He put this at as low as 1bp – which he said was in line with the most impressive deals so far this year – although he said that KBC’s flat curve makes working out the exact new issue premium difficult, and a lead syndicate official said that, based on fair value of around 16bp over, the NIP was around 3bp.

The lead syndicate official attributed the deal’s success to several factors, including its spread over government bonds, a slowdown in covered bond supply ex-Germany as the senior market has reopened, and the new issue’s relatively wide spread versus much Eurozone supply at the same time as investors have the comfort of owning a CBPP3 and ECB-eligible bond.

Bankers also said that while there had been a resurgence in senior issuance last week, covered bonds were more in focus again today. After a strong open to the week yesterday (Monday), European equities were off around 0.5% this morning, and although credit indices retraced early widening, sentiment was deemed less bullish.

UniCredit launched the eighth German benchmark in eight business days this morning, a six year mortgage Pfandbrief. BayernLB, Commerzbank, Natixis, NordLB and UniCredit went out with guidance of the 3bp area and are pricing a Eu1bn issue at 1bp over, with a late update citing books of some Eu1.4bn.

Syndicate officials away from the leads noted that the spread is at the wider end of a narrow range of 1bp over mid-swaps to 3bp through mid-swaps that long four to seven year German deals have been priced at this month, with the exception of HSH Nordbank and Deutsche Pfandbriefbank trades. They attributed this to the larger size – with only Helaba having priced Eu1bn or more out of the recent supply – and possibly UniCredit coming after so much comparable issuance. However, they said that the new issue premium paid by UniCredit was still low.

Bankers said that the positive market tone should encourage other issuers that have been monitoring the market to launch deals.

“I’d be surprised if we don’t see anything on the screens this afternoon,” said one.

Sparebanken Sør Boligkreditt is preparing for a potential debut euro benchmark with a roadshow announced today. Danske, LBBW, Nordea and UniCredit are arranging the roadshow, which will run from Friday of next week (4 March) until the following Thursday.

The subsidiary of Norway’s Sparebanken Sør has previously issued in Norwegian kroner and its covered bonds are rated Aaa by Moody’s.