Covered bond supply will slow next week, according to bankers, after a wave of well-received post-ECB supply, as Easter holidays and the quarter end approach, but issuers are still expected to tap a window at the start of the week, with Van Lanschot in the pipeline and peripherals looking.

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Issuers sold six euro benchmark covered bonds this week, totalling Eu6.5bn. Syndicate officials said each had at least gone well, with the six deals attracting an average oversubscription level of 177%.

They noted that two German issues met more limited demand, with a Eu1bn long six year for Helaba on Monday just subscribed and a Eu500m seven year for WL Bank attracting Eu800m of orders yesterday (Thursday), but said the wider-priced deals from France and the Nordics that made up the rest of the week’s supply more accurately represented the strength of the market.

Syndicate officials described a dual tranche Eu3.25bn seven and 15 year deal issue for Crédit Agricole Home Loan SFH on Wednesday as the strongest result of the week, after the deal attracted combined orders of Eu5.8bn.

“The highlight of the week has to be Crédit Agricole,” said a syndicate official away from the French’s issuer’s leads.

The syndicate official noted that the new issue was supported by the launch of a cash tender offer for up to Eu2bn of Crédit Agricole’s “off market” euro-denominated hard bullet outstandings.

“It’s a demonstration of how if you can ally a new issue alongside the ability to facilitate better liquidity for people to switch instruments then that can be met with extremely strong demand,” he said. “It’s indicative of the fact that people would rather switch instruments than buy paper outright.

“But even if you factor out the tender offer, it’s a very impressive result.”

Van Lanschot is expected to sell its second, conditional pass-through covered bond early next week, having held a roadshow that will conclude today, but syndicate officials noted that the publicly announced pipeline is otherwise clear.

They added that supply will likely be more limited next week as certain jurisdictions will begin Easter holidays on Thursday, with the rest of Europe then out of the office until the following Tuesday, and with the end of the quarter approaching.

“I suspect, holidays or not, people will start leaving their offices early on Thursday, and I would assume that the last option next week will be Wednesday,” said one. “Therefore we will see so much activity in the next two weeks, but this is a routine cooling-off period, and not anything to worry about.”

However, bankers said new issue conditions are expected to remain stable, and said some issuers could choose to use the three day window at the start of the week rather than risk revisiting the market after the holiday period.

“You just don’t know for sure whether this enthusiasm will still be around when everyone gets back in the office,” said a syndicate official. “If you’re holding on to a deal, it makes more sense to get it away in the first half of next week than to wait.”

Bankers also noted that no peripheral supply has emerged since a Eu1.25bn seven year issue for Intesa Sanpaolo last Friday. The deal, which was the first Italian covered bond of the year, attracted the most for any single tranche covered bond this year at Eu4bn, on the back of increased risk appetite following an ECB meeting on Thursday of last week.

“You would probably have thought given the post-ECB rally, and how well Intesa did just a week ago, that we’d have seen more from the peripheral issuers this week,” said a syndicate official.

Some bankers suggested that the announcement of a new series of four targeted longer-term refinancing operations (TLTRO II) by the ECB last week could moderate covered bond supply from the periphery.

However, others said the strong performance of deals will likely encourage peripheral issuers to enter the covered bond market in the coming weeks, Italians in particular.

Peripheral covered bonds have outperformed on the secondary market this week, with Italian spreads seen tightening 13bp since the ECB meeting and Spanish spreads 12bp, and bankers noted that more recent peripheral issues had performed particularly well. A BBVA Eu1.25bn seven year priced at 52bp on Tuesday of last week was today seen trading 16bp inside re-offer, while a recent Bankia Eu1bn seven year was quoted 31bp tighter and a Banco Popular Eu1bn seven year 37bp tighter.

“There are peripheral issuers looking, and the levels are surely tempting,” said a syndicate official.

Photo: Van Lanschot