Bank of Queensland and Kommunalkredit are set to enter the market next week with debut CPT and SRI covered bonds, respectively, and will have to navigate potentially difficult price discovery processes amid increasing investor sensitivity, bankers said. Leeds is expected with a Eu500m issue.

Bank of Queensland and its leads – BNP Paribas, Commerzbank, ING, National Australia Bank and UBS – will today (Friday) complete a European roadshow introducing the regional bank’s newly established conditional pass-through (CPT) covered bond programme, ahead of a potential euro benchmark debut with an intermediate maturity.

A European roadshow for Kommunalkredit Austria ended yesterday (Thursday), with the issuer and leads Commerzbank, Deutsche Bank, ING and RBI marketing a Eu300m social public sector covered bond, which will have an intermediate maturity. It will be Kommunalkredit’s first public covered bond since a demerger in autumn 2015 that split the bank – an infrastructure finance specialist – into the going concern entity that will be issuing the new bond and wind-down entity KA Finanz. The covered bonds are rated Baa2/A (Moody’s/S&P).

A banker said both are likely to be launched next week.

“Usually inaugural deals or special projects like SRI deals require a bit of credit work and discussions with investors following the roadshow,” he said, “so you probably should not expect these deals to be out on Monday intra-day.

“If there is a good window it would be fair to expect both next week.”

Bankers said the issuers will have to undergo a potentially challenging price discovery process, given the unique nature of both bonds – Bank of Queensland’s being the first CPT covered bond from Australia and Kommunalkredit’s the first SRI covered bond from Austria and the first sustainable covered bond backed by public sector assets.

“With Kommunalkredit not having any reasonable comparables, definitely not with the SRI feature, and Bank of Queensland being the first Australian with that structure, the starting point is less obvious than for other transactions,” said a syndicate banker. “At the end of the half year you must always be cautious about real money investors, and price sensitivity is now more of a topic than it has been in previous weeks.

“That said, the market remains constructive, and yesterday’s Nationwide deal (see separate article) showed that if you have the right deal and the right level – or, perhaps in that case, a cheap starting level – there is still a lot of liquidity to tap into.”

Another banker agreed.

“We’ve seen that you can still get deals convincingly done, but investors are getting more selective,” he said. “People are unsure about the direction of spreads and are adjusting their buying.

“It’ll be interesting to see how BOQ and Kommunalkredit approach it.”

Leeds Building Society also held a European roadshow earlier this week, ahead of an expected Eu500m no-grow covered bond with an intermediate maturity. A banker at one of leads Barclays, BNP Paribas, Natixis, Santander and UniCredit said the deal will be launched next week, subject to market conditions.

The deal will be Leeds’ second euro benchmark covered bond, following a Eu500m four year debut in April 2016.