A Eu500m seven year Leeds Building Society issue was deemed a fair bellwether for covered bonds today (Monday), being priced at a “reasonable” 2bp-3bp premium on the back of some Eu650m of orders, with conditions constructive despite the recent bout of supply not performing.

Following a European roadshow last week, the Eu500m no-grow seven year issue was this morning launched with guidance of the 20bp over mid-swaps area by leads Barclays, BNP Paribas, Natixis, Santander and UniCredit. Guidance was later revised to the 18bp area plus or minus 1bp, will price within, range on the back of books above Eu650m, before the spread was fixed at 17bp.

“I think this deal sums up the state of the market quite well,” said a syndicate banker away from the leads. “The market is neither super-bullish nor in full on, end of H1 fatigue mode – it is simply fine, and relatively constructive given the time of the year.”

Leeds’ only other outstanding euro benchmark covered bond is a Eu500m four year that was priced at 27bp over mid-swaps in April 2016, and which was seen trading at around 1bp, mid, today.

The new issue was deemed to have offered a premium of around 2bp-3bp, with bankers citing Yorkshire Building Society April 2023s at around 10bp, mid, and Coventry Building Society January 2024s at around 14bp – noting that the three issuers’ 2020 and 2021 outstandings trade roughly in line.

“Given the market environment and the profile of the issuer, you wouldn’t necessarily expect this to be the most dynamic trade,” said another syndicate banker away from the leads. “But 17bp-ish is where most market participants would have expected Leeds to land, and that is a decent outcome for them and a reasonable pick-up for investors.”

This morning, iBoxx Euro covered bond indices were on average 2bp wider week on week, and bankers attributed this partly to relatively heavy supply last week, when Eu4.75bn of euro benchmarks were sold.

“Spread-wise, everything feels slightly softer than last week,” said a syndicate banker. “With the exception of last week’s Nationwide deal – which was extremely cheap – all of last week’s deals are no better bid than re-offer, with some even slightly wider.

“This is simply because the market has become saturated to an extent. However, it is not necessarily something you need to worry about as an issuer or as a lead manager as there is so much liquidity that most trades should have no problem getting done, especially these Eu500m no-grow transactions.”

News that the European Commission on Sunday night approved a plan from the Italian government to wind down Veneto Banca and Banca Popolare di Vicenza – which the ECB deemed “failing or likely to fail” on Friday – prompted tightening in Italian subordinated and senior spreads, but no reaction was seen in Italian covered bonds.

“The market has been discussing the problems of the Italian banks for some time, people have sold the rumour and bought the fact, and what we’ve seen this morning is some gradual improvements in subs and seniors,” said a syndicate banker. “There’s not really any reading for markets as such, and definitely no real impact on covereds that you can identify.”