New issue premiums will remain minimal next week, according to bankers, after recent non-peripheral deals were seen pricing flat to or even through issuers’ secondary curves while still performing “fantastically well”, as a spring lull keeps supply low while demand is high.

Only two euro benchmark covered bonds were sold this week, both on Tuesday, with LBBW pricing a Eu750m long five year Pfandbrief at 4bp through mid-swaps, and OP Mortgage Bank a Eu1.25bn seven year issue at 4bp over. The deals had bid-to-cover ratios of around 2.9 and 2.4, respectively.

Some syndicate officials said that OP’s new issue had been priced through the bid side of the issuer’s curve, seeing OP November 2020s at flat, bid, and September 2022s at 3bp and estimating that fair value for the new issue was 5bp-6bp.

“OP started tighter than I thought they could and then were able to tighten the spread by 4bp,” said a syndicate official away from the deal. “It was really an achievement.”

According to analysts at BBVA, new issue premiums for euro-benchmark Nordic issues in March and April were on average 4bp, with the smallest being 3bp.

OP’s deal is the tightest-priced benchmark covered bond from a non-German issuer this year.

Bankers said that LBBW’s deal offered a new issue premium of 1bp-3bp.

“Pfandbriefe are a bit of a special case at those tight extremely levels, but even so, LBBW had a fairly slim premium,” said a syndicate official away from the deal.

A syndicate official at one of LBBW’s leads said the deal offered a “negligible” new issue premium, adding that the deal was also the second tightest-priced benchmark covered bond of the year, after a Eu750m four year issue for LBBW that was priced at minus 7bp on 5 January.

Both deals were today (Friday) seen trading 1bp-2bp inside re-offer.

Bankers noted that the only benchmark deals deemed to have offered substantial premiums in recent weeks are a first Turkish euro-denominated public covered bond from VakifBank and a Eu500m seven year Pfandbrief for HSH Nordbank.

A thrice subscribed Eu1bn seven year issue for Toronto-Dominion on 20 April and a Eu1bn long eight year issue for CFF on Monday of last week (25 April) were also priced flat to the bid side of the issuers’ curves, according to bankers.

The deals came as the pace of issuance slowed in mid-April, while issuance was interrupted by blackout periods and public holidays across Europe, and with many issuers having been active in the covered bond market earlier in the year.

In the three weeks since the week of 17 April six euro benchmark covered bonds were sold, totalling Eu5bn, whereas in the first two weeks of April, 11 deals were sold, totalling Eu10.75bn.

“It’s notable that the premiums shrank as supply began to dry up,” said a syndicate official. “Of course we’ve had a really busy year so far, but supply had been light in the last couple of weeks compared to the highs of March and April, when we saw around seven or eight trades a week.”

Other bankers agreed, also attributing the falling premiums to low supply and high demand.

“It’s probably wrong to say that they’re happy to buy at these levels, but as of today, new issue premiums are just not required to get investors interested in most trades,” said one. “These deals have gone fantastically well without them.

“People have cash that they feel they need to put to work, and they don’t have many options to choose from.”

Bankers suggested that the trend is likely to continue next week, when overall issuance conditions expected to remain strong, even if the pace of supply increases.

“Issuers are eyeing the market and they can see that next week is a clear week, with no key data points, while there’s another round of public holidays afterwards – so you would expect to see more deals emerge,” said a syndicate official. “But that said, I expect more of the same next week.

“It will take a bit more time for premiums to naturally rise again.”