Erste had the euro benchmark market to itself with a Eu750m 10 year covered bond today (Tuesday) that, having attracted around Eu1.25bn of orders after a cautious start, was compared favourably to recent 10 year supply from Germany, consolidating recent Austrian gains. Bawag is set to follow with a 10 year tomorrow.

Erste’s 10 year issue follows a Eu750m 10 year public sector Pfandbrief for Helaba on Thursday, sold as part of a dual tranche offering with a Eu1.25bn five year, and a Eu500m 10 year for NordLB yesterday (Monday). The oversubscription levels for both were at the lower end of those achieved since the market opened last week, with Helaba’s combined Eu2.4bn book skewed towards the shorter tranche and NordLB’s deal marginally subscribed.

“Even with the supportive January supply/demand dynamics, the 10 year can be a tricky maturity,” said a banker.

After announcing a mandate yesterday afternoon, Erste leads Crédit Agricole, Erste Group, ING, LBBW and Natixis launched the 10 year mortgage covered bond this morning with guidance of the 7bp over mid-swaps area. After the books had been open for just under an hour the leads announced that orders had topped Eu1bn.

Guidance was later revised to 4bp plus or minus 1bp will price within range and the size set at Eu750m on the back of books above Eu1.25bn, before the deal was re-offered at 3bp. The final book stood at around Eu1.25bn from around 70 orders.

“It was a very smooth and comfortable transaction, especially compared to the recent 10 years from Germany,” said a syndicate banker at one of Erste’s leads. “Those two deals were slightly different stories, with Helaba’s 10 year part of a dual tranche issue and therefore subject to some cannibalisation, and with the NordLB 10 year kind of a credit story, with the issuer still affected by headlines about their shipping portfolio.

“But even with those mitigating circumstances, it is encouraging to see a result like this for an Austrian name, given the headlines Austria has had up until last year.”

The deal is the first benchmark Austrian covered bond since September, when Raiffeisenlandesbank Oberösterreich sold a Eu500m 10 year debut on the back of almost Eu2bn of orders. Whereas Austrian deals had at times struggled to find demand in recent years, bankers said that strong receptions for RLB Oberösterreich’s deal and a sub-benchmark debut for Hypo Oberösterreich in October were evidence of improving sentiment towards the jurisdiction. This came after a deal was reached between Heta Asset Resolution – the bad bank of Hypo Alpe-Adria-Bank – and its creditors.

“If you look at the overall development, Austria was the second best performing jurisdiction in the covered bond market last year, behind only Spain,” added the lead syndicate banker. “RLB Oberösterreich’s deal was the first strong signal that sentiment towards Austrians was improving, and today’s deal is a continuation of that story.”

Bankers said Erste’s deal offered a new issue premium of around 5bp, seeing Erste January 2023s at minus 4bp, mid, and February 2025s at minus 3bp. They noted this was more generous than the premiums paid by some of yesterday’s supply – with shorter dated euro benchmarks from SCBC, Swedbank and Bank of Nova Scotia seen as offering 2bp concessions at most – but said Erste’s approach was appropriate.

“This is a 10 year, after all, and from a not particularly frequent issuer, so I think it is fair what Erste is doing,” said a syndicate banker away from the leads. “Given that it’s Austria, and given that NordLB’s 10 year yesterday wasn’t a great result, it made sense for them to be a bit more cautious from the initial guidance.”

Erste’s last benchmark covered bond came in January 2016, when it sold a Eu750m January 2023 issue.

Shortly after Erste’s deal was priced, fellow Austrian issuer Bawag PSK announced a mandate for a Eu500m no-grow 10 year public sector covered bond. A syndicate banker at one of leads Commerzbank, Goldman Sachs, JP Morgan, Morgan Stanley and UBS said the deal is expected to be launched tomorrow (Wednesday).

“Besides the different collateral, this looks like a straightforward piggy-back trade, and it’s a good idea, given the demand Erste received today,” said a banker away from the leads.

With Erste’s deal the only benchmark covered bond to be launched today, the pace of issuance has fallen substantially from Monday, when four euro benchmarks were brought to market, alongside one benchmark apiece in the sterling and US dollar markets.

Other issuers are said to be monitoring the market and syndicate bankers are confident that euro supply will continue through the week, but some suggested that the pace of supply could now remain below that of last week – when nine euro benchmarks were sold in the first three trading days of the year.

“A lot of issuers are coming up to blackout periods, with some of the Nordic names first up,” said a syndicate banker. “It’s only natural that things start to slow down.”

Others were more bullish, however.

“We have still taken a lot of issuer calls today and there are a lot of guys looking at everything from five to 10 years,” said another syndicate banker. “I think there’s a lot more to come.”