Banca Popolare di Milano launched the first benchmark Italian covered bond since March today (Wednesday), attracting Eu2.2bn of orders for a Eu750m seven year OBG with only a slim premium, attributed to limited peripheral supply. Sabadell is expected to follow, with an eight year cédulas tomorrow.

Banca Popolare di Milano

BPM’s new issue is only the third benchmark Italian covered bond this year, with the last having come on 23 March, when Banca Popolare di Sondrio sold a Eu500m seven year issue.

Banca Popolare di Milano yesterday announced a mandate for a euro benchmark seven year obbligazioni bancarie garantite, with leads Banca Akros, Barclays, BNP Paribas, Citi, and Commerzbank.

The leads launched the deal this morning with guidance of the 55bp over mid-swaps area, before revising guidance to 46bp-49bp on the back of Eu1.75bn of orders. The spread was then fixed at 46bp and the size at Eu750m, with the book closing at Eu2.2bn.

“It’s a very impressive outcome, especially at it is being priced so close to fair value,” said a syndicate official at one of the leads.

Bankers said the deal offered a new issue premium of at most 3bp, with some calculating that it offered no concession, seeing the issuer’s September 2022s at 36bp, mid, and December 2025s at 69bp.

“We have seen very little peripheral supply recently, and all the while spreads have been converging towards the core names,” said the syndicate official. “That gave them a lot of leverage.”

Italian covered bond spreads have tightened substantially in recent months, having, alongside Spanish spreads, benefitted the most from the performance observed across jurisdictions since a rally following an ECB meeting on 10 March.

Syndicate officials said that peripheral issuers had since remained on the sidelines, however, because of the availability of upcoming TLTROs from the ECB and because the relative value of their covered bonds versus government had diminished as peripheral sovereign spreads had widened.

Bankers said BPM’s new issue came around 7bp inside the Italian sovereign.

“I think it was a relatively sensible starting point, and it’s not a crazy give-up versus the sovereign,” said a syndicate official away from the leads. “I was confident that this would go well.”

BPM’s last benchmark covered bond was a Eu500m 750m 10 year OBG in November of last year.

Spanish issuer Banco Sabadell is expected to issue a euro benchmark eight year cédulas hipotecarias tomorrow, after having announced a mandate today with leads Barclays, Crédit Agricole, Commerzbank, Lloyds, and Nomura.