BNP Paribas Fortis issued a twice-subscribed Eu500m seven and a half year Pandbrieven today (Thursday), benefitting from a market buoyed by Dutch election results and a Fed rate hike yesterday. Dutch spreads are meanwhile expected to tighten following the vote.

The Belgian bank was the first mover in the benchmark euro financials markets amid a wider rally that followed the Federal Reserve’s delivery of a 25bp hike yesterday (Wednesday) and the Dutch vote – which saw prime minister Mark Rutte’s Liberal Party win and hold off a challenge from the EU-sceptic, far right Freedom Party, and was deemed a positive sign for the Eurozone.

BNPP Fortis leads ABN Amro, BNP Paribas, Commerzbank and Danske Bank launched the Eu500m no-grow September 2024 mortgage Pandbrieven with guidance of the 1bp over mid-swaps area. Guidance was revised to the minus 2bp area, before the spread was set at minus 3bp. The book closed at over Eu1bn.

“The rally is less pronounced in covered bonds, but in this asset class, too, you can see a strong response to yesterday’s good news,” said a syndicate banker away from the deal. “That is evident in today’s trade for Fortis, which went from plus 1bp to minus 3bp in a heartbeat.

“Sometimes that move across the mid-swaps flat level can prove a bit tricky, but Fortis clearly had no problems whatsoever.”

Bankers said the strength of the deal also reflected the relatively scarcity of Belgian paper and the strength of the BNP Paribas name. The deal is Fortis’ second benchmark covered bond, following a Eu500m seven year debut last October. There has been no other benchmark Belgian supply since then.

Bankers said the deal offered a new issue premium of 1bp-2bp, seeing BNP Paribas Fortis October 2023s at minus 5bp, mid, and the June 2024s of fellow Belgian issuer Belfius Bank also at minus 5bp. They also cited French covered bonds issued by BNP Paribas Home Loan SFH, seeing its July 2024s at minus 5bp and November 2024s at minus 11bp.

The only other benchmark offering in financials this morning was a US dollar-denominated Additional Tier 1 (AT1) from SEB.

Westfälische Landschaft Bodenkreditbank (WL Bank) meanwhile issued a Eu250m 20 year Pfandbrief. Leads Deutsche, NordLB and UniCredit priced the public sector issue at 5bp over mid-swaps this morning.

The prospects for further issuance are said to be good for the coming weeks after the Dutch election and the Fed hike were cleared without negative surprises, and given risk-on sentiment following the rally in European stock markets, which hit their highest levels in 15 months this morning.

The Dutch vote had been expected to result in another coalition government headed by the Liberal Party, but Geert Wilder’s Freedom Party gained fewer seats than expected. The FOMC’s decision to raise interest rates by 25bp to 1% was also widely anticipated. Market participants were, however, reassured as the Fed largely stuck to its forecast, with a further two hikes expected this year and three next.

“It should all be conducive,” said a syndicate banker. “These events were never likely to be show-stoppers for covered bonds, but now we have a good, clear window up to Easter and the French elections.”

Bankers expect some issuers to focus on higher beta issuance in the risk-on window, but are confident that further covered bond supply will emerge and continue to be well received. PKO Bank Hipoteczny and Hypo Noe are currently on the road ahead of potential euro benchmarks, with PKO’s deal possible as early as next week.

There was relatively little movement in covered bond spreads this morning, but analysts now expect Dutch spreads to outperform comparables over the coming weeks. Although Dutch covered bonds have recently performed better than French covered bonds – with French spreads under more pressure as a victory for Marine Le Pen has been deemed more likely than for Wilders – they have failed to match the performance of other jurisdictions this year.

Maureen Schuller, head of financials research at ING, noted as an example that Norwegian covered bond spread have converged towards Dutch spreads, to the extent that SpareBank 1 Boligkreditt September 2022s were at the start of this week quoted 7bp wider than ABN Amro September 2022s, having been 20bp wider in January 2016.

“In our view, Dutch covered bonds have best performance potential up to the five year area of the curve,” she said. “In this area the bonds trade widest versus sovereigns and SSAs and stand to benefit most from this month’s Eu4.35bn redemptions in Dutch euro benchmark covered bonds.”

Some market participants have interpreted the Freedom Party’s poor showing as a positive sign ahead of the French election, raising hopes that the tide is turning against right wing populist parties, and analysts said that French covered bonds could therefore also outperform comparables in the coming weeks, subject to further developments ahead of the first round of voting on 23 April.