Intesa today benefited from a positive reaction to new ECB measures to draw the most demand of any benchmark this year, over Eu4bn for a Eu1.25bn seven year. Bankers said increased risk appetite should boost peripheral issuance, but that others may now favour riskier products.

The ECB yesterday (Thursday) announced, among other measures (see separate article), a 10bp cut in the deposit rate to minus 0.40% and 5bp cuts in the main refi and marginal lending facility rates, as well as a Eu20bn monthly increase in QE.

Bankers said markets had ultimately reacted positively to the news, with credit indices tightening and holding their gains, while equities were more volatile.

“The market today feels settled,” said an analyst. “Yesterday it felt as though people did not know what to trade first – between Draghi’s bullish press conference and then his bearish comments in the Q&A, when he all but took further rate cuts off the table, for now.

“But it feels as though the risk-on sentiment is here to stay.”

A syndicate official agreed.

“The credit and FI markets are relatively happy,” said a syndicate official. “Equities were a bit more up and down, but the markets are staying tighter and I’d expect issuance to be well supported across the board.

“I’d expect most people are feeling their pipelines building.”

Intesa Sanpaolo was the only issuer active in the covered bond market this morning, selling the first Italian benchmark of the year, with the last having been a Eu1.25bn 10 year for Intesa on 9 December.

Recent Spanish supply, starting with a Banco Popular Eu1.5bn six year cédulas priced at 88bp on 25 February, has seen spreads tighten and new issue premiums reduced until a BBVA Eu1.25bn seven year was priced at 52bp on Tuesday, with bankers deeming the deal to have paid a concession of around 7bp.

Intesa leads launched the seven year issue this morning with initial price thoughts of the 55bp over mid-swaps area. After guidance of the 50bp area the deal was re-offered at 45bp on the back of Eu4bn of orders.

“It’s a blowout,” said a syndicate official away from the leads. “Those are quite some books, and that’s reflected in the 10bp of tightening, which is more than I can remember seeing for a while.”

Syndicate officials noted that the book is the largest of any covered bond issue this year, surpassing the Eu3.5bn of orders taken by Belgium’s KBC for a Eu1.25bn long six year issue on 23 February.

“Intesa jumped on the Mario bandwagon,” said another syndicate official. “It’s interesting that they went with a slightly more aggressive level to start with than the impressive BBVA deal on Tuesday, who started about 15bp back.

“That is likely a result of the success of the BBVA deal allowing them to be a bit more aggressive at the outset, or the impact of the ECB adding risk appetite, or a bit of both.”

Bankers said Italian covered bond spreads tightened 2bp-3bp yesterday, in line with other peripherals, which outperformed on the back of the ECB’s announcements while core spreads remained stable. Italian senior unsecured spreads meanwhile tightened 10bp-15bp.

Syndicate officials said spread movements made fair value for the new issue difficult to calculate, but said it was in the context of 40bp-45bp – seeing Intesa’s 2022s at around 40bp, mid, and 2025s around 55bp – meaning that the new issue premium was arguably as low as zero or in the region of just a few basis points.

“Obviously that’s an impressive level for a peripheral issuer, with a premium in line with some the best of the core deals we’ve seen recently,” said a syndicate official away from the leads. “It certainly looks like good times are ahead for the peripherals.”

Bankers said the boost to risk appetite will likely lead to increased peripheral covered bond supply in the coming weeks, but said that better conditions for higher beta products overall could see some issuers favouring the senior unsecured and subordinated markets, which have at times this year been closed while covered bond supply has continued.

They added that the measures announced by the ECB will likely limit funding opportunities for banks in the short end of the curve, more of which will move into negative yielding territory.

“We would have said these parts of the curve were closed, before Berlin Hyp came along with its negative yield this week,” said a syndicate official. “But clearly not everyone can do that kind of deal.

“You’d expect focus to shift further out the curve.”

Sparebanken Sør Boligkreditt this morning announced a mandate for a debut Eu500m no-grow five year euro covered bond, which is expected to be launched in the early to middle part of next week, subject to the establishment of credit lines, according to syndicate officials at the leads.

The announcement comes after the Norwegian issuer held a European roadshow, which concluded yesterday.