Banca Popolare di Sondrio attracted Eu1.4bn of demand for a rare Eu500m seven year OBG today (Wednesday), benefitting from supportive yet underused conditions for peripheral issuers to price with a relatively slim premium, according to bankers.

BP Sondrio’s new issue is the first benchmark peripheral covered bond since a Eu1.25bn seven year issue for Intesa Sanpaolo on 11 March. That deal, the first Italian covered bond of the year, attracted the most demand for any single-tranche covered bond this year, Eu4bn, on the back of increased risk appetite following an ECB meeting the previous day.

Bankers said it was surprising that more peripheral supply had not followed, given the supportive conditions, with peripheral covered bonds have outperformed on the secondary market since the ECB meeting, and the relative lack of peripheral supply so far this year.

“We have seen peripheral spreads tighten 15bp, 20bp, even 25bp since the ECB depending on the name,” said a syndicate official, “so it is about time we have seen a deal.”

BP Sondrio leads BNP Paribas, HSBC, Natixis, Nomura, Société Générale and UniCredit launched the Eu500m no-grow seven year obbligazioni bancarie garantite (OBG) this morning with initial price thoughts of the 60bp over mid-swaps area. They then moved to guidance of the 52bp-55bp area, on the back of orders over Eu1bn, before re-offering the deal at 52bp and closing the book at Eu1.4bn.

“It’s a good success, and given the strong book I would expect some good performance from this,” said a syndicate official at one of the leads.

A banker away from the leads noted that the 8bp spread movement was in line with some of the more impressive peripheral deals this year.

“From 60bp to 52bp is a good move and, with the fast execution, it suggests they’ve got a strong book,” he said. “It reflects what we have seen from the peripherals since the ECB, and you’d expect it will encourage a few more to make a move after Easter.”

Syndicate officials said it is difficult to calculate fair value for the new issue given that BP is a rare issuer.

The deal is only the Italian co-operative bank’s second benchmark covered bond, following a debut Eu500m August 2019 issue sold in July 2014, which was quoted in the low 20s, bid. Syndicate official at and away from the leads – also seeing UBI Banca January 2023s quoted at around 35bp, bid – suggested fair value was around the high 40s.

“That’s quite a slim premium, which is impressive for this kind of name,” said one.

Bankers noted that the deal offered a 10bp pick-up versus BTPs.

Syndicate officials had said that at least one peripheral issuer had been considering entering the covered bond market yesterday (Tuesday) morning, but held off after news emerged of terror attacks in Brussels, while deals in other markets were also delayed.

Bankers noted that conditions were stable today, with credit indices tightening through the morning, as the market proved resilient to yesterday’s events.

“On the whole, sentiment is rather positive today,” he said. “The markets reacted somewhat yesterday of course, but the recent positive direction of the market has outweighed those events, and investors are clearly still there and deals are going well.”

Van Lanschot was the only issuer to enter the covered bond market yesterday (see separate article), with the Dutch issuer’s deal having been well-flagged by a roadshow and a mandate announcement the previous day, with only SSA issuers also active in euros.

Syndicate officials noted that higher beta products were available today, with BNP Paribas selling an Additional Tier 1 (AT1) issue.

“The stability and recovery we have had overnight helped push these deals forward,” said one. “It’s good to see.”

However, bankers said further covered bond supply is unlikely to emerge this week, with some jurisdictions marking Easter public holidays tomorrow and others joining on Friday and Monday.

“You can never say never, I suppose,” said one. “You could sneak in an opportunistic tap, but there is no pipeline and I think we are done.

“We have had more than Eu60bn of supply in just three months, so people should enjoy a drink with colleagues, eat their Easter eggs and enjoy the break. When we return I would expect activity to pick up quickly again.”