Covered bonds retook the spotlight today (Tuesday) as three issuers hit the market across the curve, with Caffil tapping the undersupplied long end for a Eu1.25bn 10 year, ASB Finance printing a rare Eu500m five year and LF Hypotek selling an almost thrice subscribed Eu500m seven year.

Issuance across the financial institutions and corporate markets got off to a busy start yesterday (Monday) as the markets reopened in earnest after the Easter holiday period and the start of the new quarter. However, only one benchmark covered bond emerged, a Eu1.25bn seven year for Lloyds, with supply weighted towards the senior unsecured market.

Markets then opened on a softer tone today, with equities down on the back of disappointing economic data from Germany, a fall in the oil price and a warning from the IMF on the global economy. Syndicate officials said the balance had therefore swung back in favour of covered bonds, with three issuers launching benchmarks while only BNP Paribas entered the senior unsecured market, with a deal that had been announced yesterday.

“It makes sense with the weaker tone this morning that the covered bonds would go ahead while those planning senior issues are a little more cognisant of the conditions, with the exception of BNP Paribas, which was flagged yesterday and shouldn’t be a difficult trade,” said one syndicate official.

Another banker said that strong demand for each of today’s issues suggests covered bond issues will continue to go well even if wider market conditions fail to improve.

“These deals are evidence that in spite of some of the headline risk indicators looking weaker overnight, the cash market, whether in covereds or overall credit, remains strong,” he said. “These are all solid trades, across the curve.”

Caffil leads Barclays, Commerzbank, Deutsche, Natixis and UBS launched the 10 year obligations foncières with guidance of the 18bp area, before revising guidance to the 16bp area. The spread was then fixed at 14bp, on the back of around Eu2.3bn of orders.

“Those books are a very strong result,” said a syndicate official away from the leads. “It looked fairly cheap to start but they drove it in well by 4bp, and it’s a good print all round.”

Syndicate officials said fair value for the new issue was around 10bp, based on the bid side of Caffil’s secondary curve. They added that the deal looked attractive as it offered a pick-up of around 20bp versus the French sovereign.

Bankers said the deal was well-supported in part because of a relative undersupply of longer dated paper in recent weeks, with recent supply having been focussed in the five to seven year part of the curve.

The new issue is the first 10 year benchmark covered bond since 26 January, when WL Bank tapped the tenor with a Eu500m Pfandbrief, although issuers have sold longer dated supply since, with Crédit Agricole most recently selling a 15 year issue on 16 March as part of a dual tranche deal.

“Caffil have clearly benefitted from the duration bid, and I’d argue at the moment that the 10 year could be one of the sweet spots in the market given the limited longer-dated supply we’ve had,” said a syndicate official.

Bankers said more longer-dated covered bond supply is likely to follow, given falling yields at the shorter-end of the curve following rate cuts implemented by the ECB last month.

ASB Finance leads Commonwealth Bank of Australia (CBA), DZ, HSBC and UBS launched the Eu500m no-grow five year issue with initial price thoughts of the low 30s over mid-swaps, before moving to guidance of the 30bp area on the back of IOIs of Eu850m. The spread was then set at 29bp with the book at Eu1bn.

“They’ve done well, especially considering they have a more limited investor base than the others out there,” said a banker away from the deal. “They were a bit defensive with the price and the maturity, but that’s sensible.

“This is a rare name from a rare jurisdiction.”

The new issue is the first euro benchmark covered bond from ASB Finance since October 2013 and the first from a New Zealand issuer since September, when Westpac NZ sold a Eu500m 2020 issue.

Syndicate officials said fair value for the new issue was around the low 20s, seeing ASB November 2018s – the issuer’s longest dated outstanding benchmark – at 14bp, mid. They also cited CBA February 2021s at 12bp.

ASB Finance is owned and guaranteed by ASB Bank Limited, a subsidiary of CBA.

“It’s an attractive premium relative to CBA’s euro covered curve, which suggests fair value for a new CBA issue would be around 15bp,” added a syndicate official away from the leads. “The premium from that is a combination of the Australia-New Zealand differential and the new issue concession.”

Länsförsäkringar Hypotek leads Barclays, Commerzbank, Danske and LBBW launched the Eu500m no-grow seven year issue with guidance of the 20bp over mid-swaps area, before revising guidance to the 18bp area on the back of over Eu800m of orders. The spread was then set at 15bp with the books above Eu1.4bn.

“It’s good to see them tighten the price in a fair bit, and they’ve done that while getting the deal almost three times oversubscribed,” said a banker away from the leads. “It’s another good result.”

Syndicate officials at and away from the leads said fair value for the new issue was in the low teens, seeing LF Hypotek’s March 2021s at 9bp, mid, and April 2022s at 11bp. They also cited 2021-2023 paper from Swedbank, SEB, SCBC and Svenska Handelsbanken at 9bp-10bp.

Syndicate officials said the differential between LF Hypotek and the Swedish national champions is appropriate given LF Hypotek is a less established issuer, which generally taps the euro covered bond market once per year. LF Hypotek’s last euro-denominated benchmark covered bond came in April of last year, a Eu500m seven year issue.

CIBC yesterday announced a mandate for a global investor call tomorrow (Wednesday) ahead of a potential Australian dollar-denominated covered bond. ANZ, CIBC, HSBC and NAB have the mandate.