NAB raised $1bn and Swedbank £250m yesterday (Wednesday), bagging prices that compared favourably with what could have been achieved in a subdued euro market – where Coventry Building Society is “patiently” awaiting an opportunity. Suncorp tapped a A$350m deal today.

Yesterday’s two new issues are the only benchmark covered bond supply since a Eu500m 15 year OF for Caffil on Wednesday of last week (23 November), and bankers attributed the lack of euro supply to uncertainty ahead of Italy’s constitutional referendum on Sunday as well as poor performance of deals and a lack of bids on the secondary market going into the year-end.

“It’s understandable that many people have decided to stay out of the euro market this week,” said a banker. “That has left people to look at the alternatives, where some have found opportunities.”

National Australia Bank (NAB) leads HSBC, NAB, RBC and TD launched the five year 144A issue yesterday morning with initial price thoughts of the mid to high 60s over mid-swaps. After the US open, guidance was set at 65bp, the number, with books approaching $900m, before the spread was fixed at 65bp and the size at $1bn (Eu941m, A$1.34bn). The final order book was over $1.25bn.

Syndicate bankers said the deal offered a new issue premium of 3bp-4bp, seeing NAB March 2021s at 60bp, bid, and Westpac February 2021s at 59bp.

“That’s less premium than issuers have been paying on the euro market,” said a syndicate official at one of the leads.

The lead syndicate banker added that the spread of 65bp was equivalent to a euro spread of around 3bp, which he said was “there or thereabouts” where NAB would have been able to price a five year euro issue. He said it was also equivalent to a sterling spread of around 75bp over Gilts – 10bp wider than a £250m five year fixed rate issue for Swedbank was priced yesterday.

Swedbank Hypotek leads Credit Suisse and Swedbank priced the £250m (Eu294m, Skr2.87bn) five year fixed rate issue at 65bp over Gilts, in the middle of initial price thoughts, yesterday. The size of the order book was not disclosed.

“It did go well,” said a banker at one of the leads. “In this market, with sterling covered bonds not being the most liquid product, we were never likely to get tonnes of orders and tighten the spread.

“The issuer wanted £250m and we got £250m.”

Syndicates said the most appropriate comparables are the most recent fixed rate sterling five year deals, BNS September 2021s and NAB November 2021s, which were both priced at 63bp and were quoted at around 63bp, bid, yesterday.

The lead banker said the deal offered cheaper funding than Swedbank would have been able to achieve in euros.

Suncorp-Metway and its leads ANZ and NAB tapped by A$100m (Eu70m) a A$350m August 2026 issue today (Thursday). The deal was priced at a spread of 130bp over swaps, in the middle of initial guidance.

The Australian issuer’s original 10 year was priced at 135bp on 16 August and was quoted pre-announcement at 129bp, bid, implying a new issue premium of 1bp, according to a syndicate banker at one of the leads.

Bankers said the prospects of further euro-denominated covered bond supply hinge on the Italian referendum this weekend, with some suggesting that a vote against the constitutional reform – which is most market participants’ base case – could close the euro market for the rest of the year.

“It is hard to call, but if prime minister Renzi loses and goes on to resign then that could result in a new period of turmoil,” said one. “We will have to wait and see how the market reacts.”

Coventry Building Society completed a European roadshow yesterday ahead of a potential Eu500m no-grow seven year covered bond issue. A syndicate banker at one of leads Commerzbank, Danske, HSBC and Natixis said the issuer is now monitoring the market.

“We need to see how things develop and what the market delivers,” he said. “They are not under pressure to show any immediate action, so they can patiently have a rather relaxed look into opportunities as and when they occur.

Photo: Swedbank