SEB and CM-CIC each attracted over Eu2bn of orders for Eu1.5bn issues today (Thursday), building on a template set by a successful Swedbank issue yesterday, and bankers said the picture for covered bonds is encouraging as other asset classes struggle. ANZ meanwhile sold a £500m FRN.

A blowout Eu1.25bn five year issue for Swedbank that yesterday (Wednesday) drew Eu2.8bn of orders from over 130 accounts, following a similarly encouraging result from BPCE on Tuesday, convinced syndicate officials that the covered bond market had reached a turning point this week, with investors returning to the asset class.

“Overall, the picture is encouraging,” said a syndicate official away from today’s supply. “These sessions have been much better than any we have had thus far in 2016, and that positivity has carried over today.”

Another syndicate official agreed.

“While other markets are floundering, covereds are going strong,” he said. “Today’s deals look to have capitalised on that extra investor interest.”

SEB AB leads Crédit Agricole, Deutsche, ING, SEB, UBS and UniCredit launched the five year Swedish covered bond with guidance of the 18bp over mid-swaps area, before moving to guidance of 15bp plus or minus 1bp on the back of books over Eu2bn. The deal was then re-offered at 14bp and the size set at Eu1.5bn (Skr13.9bn).

Syndicate officials away from the leads noted the deal followed the same pricing steps as Swedbank’s new issue, although the issuer opted to take a larger size.

They said fair value for the new issue was around 11bp, seeing 2021 paper from SEB trading at around 10bp, bid. They noted that SEB and Swedbank tend to trade in line.

“It is a bit of a copy-and-paste trade, but there’s obviously no shame in that when you’re piggybacking on a deal as emphatic as Swedbank’s,” said one. “This is another very impressive trade.”

Another syndicate official away from the deal agreed.

“It’s the same quality, same country, same starting point and almost the same result,” he said. “You could see there was strong demand for this sort of paper and they have tapped in to that.”

Ulf Jakobsson, head of funding at Swedbank, said the demand for Swedbank’s new issue yesterday was part of a wider CBPP3-related trend

“With an order book of Eu2.8bn and 130 orders it clearly exceeded our expectations,” he said. “It indicates that some investors are interested in moving away from ECB-influenced books.”

Banks bought 54% of Swedbank’s deal, fund managers 19%, central banks and official institutions 17%, and insurance companies and pension funds 10%.

Jakobsson added that Swedbank’s deal came “a handful of basis points” inside where an equivalent Swedish krona issue would have been priced.

Crédit Mutuel CIC Home Loan SFH leads Citi, Danske, Deutsche and UBS launched the September 2022 issue with guidance of the 18bp over mid-swaps area, moving to guidance of 15bp plus or minus 1bp on the back of books in excess of Eu2bn. The deal was then re-offered at 14bp and the size set at Eu1.5bn.

Syndicate officials said fair value for the new issue was 10bp-11bp, seeing CM-CIC January 2022s at 9bp, bid.

“It’s a different animal from the Swedes, of course, but it looks like they’ve also tried a bit of a copycat trade of Swedbank in terms of the pricing,” said one syndicate official away from the deal.

Syndicate officials said the strong demand for SEB’s and CM-CIC’s new issues suggests that an increasing number of investors are again looking at covered bonds, after being absent from the market in January, and that more sizeable deals can be done should conditions remain supportive.

“Interpretations from these SEB and Swedbank deals should be handled with care,” said one. “The Swedes are top names and of course non-CBPP3 eligible, so it is a different game for most others.

“But putting aside the ECB, the BPCE and CM-CIC results are also encouraging.”

Australia & New Zealand Banking Group leads ANZ, HSBC, Lloyds and Nomura launched the three year floating rate note with initial price thoughts of the 50bp over three month Libor area. The spread was then set at 50bp on the back of around £400m of orders. The size of the deal was then fixed at £500m (Eu658m, A$1.01bn).

“To get at least £400m out of the market is a decent result,” said a syndicate official away from the deal. “It suggests liquidity in the sterling covered market is still strong.”

The syndicate official noted that sterling covered bond spreads had widened since the start of the year. Lloyds opened the market on 5 January with a £750m issue priced at 38bp, with Nordea following at 42bp and BNS at 45bp, before TD priced the last sterling benchmark at 48bp on 27 January.

“That trend is not pretty, but it’s interesting to see that the market is still open to issuers that are more focussed on after-swap costs and the levels compared to international markets, which still look attractive.”

Syndicate officials said further issuance could not be ruled out tomorrow (Friday), as issuers will be tempted to make use of what is expected to be another good window.

“People would be well advised to make use of such benign days while they last,” said one. “While we have had encouraging sessions and seen signs of recovery, we are talking only about 72 hours or so, and this is still not the greatest of markets.”