UniCredit held off issuing an OBG in June after Brexit hit peripheral spreads, according to head of group finance Waleed El-Amir, but last week it was able to outshine core competitors with the first peripheral benchmark since the beginning of June and achieve pricing close to historic tights.

The Eu1bn 10 year obbligazioni bancarie garantite (OBG) is the Italian bank’s first benchmark covered bond in almost a year, its previous deal a Eu500m five year in early September 2015. The last new Italian benchmark was a Eu750m seven year for Banco Popolare di Milano on 1 June and the last peripheral benchmark had been a Eu1bn eight year cédulas the following day.

El-Amir (pictured) told The Covered Bond Report that the issuer had been monitoring the market with a view to launching a new issue in June, but that the UK’s vote to leave the EU on 23 June had caused it to reassess its plans due to a widening of spreads.

“Spreads in covereds were pretty tight early in the year and before the Brexit vote there was a decent market opportunity,” he said, “and we were thinking about going before the end of June. But then spreads widened quite significantly, at least on the peripheral side, so we waited a little.

“We were then confident that on the week of the 22nd that all the major German accounts that are important for the book were going to be around,” added El-Amir, “and we wanted to avoid effectively the potential traffic this week and next week, so we decided to go ahead.”

Alongside a Deutsche Bank 12 year Pfandbrief, UniCredit’s 10 year OBG was the only issue in the market on Wednesday of last week (24 August), after WL Bank had reopened the market on Monday and been followed by Commerzbank and SpareBank 1 Boligkreditt on Tuesday – all with 10 years.

“It was a relatively quiet week,” said El-Amir, “and there had been very few peripheral issuers in covered bonds, so I think we had a lot of attention. We had one of the largest books that has been seen this year.”

Leads Crédit Agricole, Deutsche, JP Morgan, Natixis, Santander and UniCredit built a book of some Eu2bn for the Eu1bn October 2026 OBG, and market participants noted that it had outshone some of the German supply.

“We had high expectations and they were surpassed,” added El-Amir. “We announced on Tuesday night that we were going to do the deal on Wednesday, and already without any price guidance we had indications of around Eu400m. And then as soon as we announced on Wednesday with IPTs of mid-swaps plus 25bp, within an hour we had about Eu1.5bn of orders, so we revised the guidance to 22bp and no-one dropped, and we ultimately priced at 20bp and the book grew to Eu2bn – so strong demand and with a nicely diversified book.”

Italy, including the Eurosystem’s allocation, took 34%, Germany and Austria 21%, France 16%, and the Benelux 9%. Fund managers were allocated 33%, banks 29%, and central banks and official institutions 27%.

El-Amir said that the choice of the 10 year maturity made sense to duration match its assets – UniCredit’s mortgages having an average maturity of around 13 years – and given the spread levels available.

“It looks attractive vis-à-vis German spreads,” he said, “but with the compression in spreads that we have seen over the last couple of years it is obviously attractive versus our own historical levels and vis-à-vis where we are originating mortgage business.

“There is a general lack of supply of peripheral covereds, which has been positive,” he added. “And given that spreads are negative for a lot of the core European covered issuers, we are able to attract a lot of interest by offering a positive spread, as well as a coupon of 0.375%.”

UniCredit is issuing fewer covered bonds this year and in future, with two factors driving this, according to El-Amir.

“We have been quite large users of the TLTROs,” he said. “In Italy, for example, we took an additional Eu3bn in the June TLTRO, and there we are quite confident that we are going to beat the benchmark that has been set, so that we will effectively be at minus 40bp – incredibly cheap funding.

“And then secondly, the fact that TLAC is coming means that there is less need to use covered and more need to use senior and bank capital instruments, so those two reasons mean that we are going to be issuing less covereds now and going forwards.”