Three benchmark covered bonds are expected tomorrow (Tuesday) – from Axa Bank Europe, Erste Group Bank and HSBC SFH – as FIG issuers flock to the markets, although a EUR500m 10 year for Commerzbank today disappointed despite taking an approach proven last week. BMO raised £400m.

Leads Commerzbank, HSBC, Natixis, NordLB and SEB went out with initial guidance of the 5bp through mid-swaps area for Commerzbank’s 10 year benchmark-sized mortgage Pfandbrief this (Monday) morning.

This starting point was deemed to offer 9bp-10bp of new issue premium versus Commerzbank’s secondaries. However, as for other recent new issues, syndicate bankers suggested that fair value is best calculated versus more recent supply than squeezed secondaries, and the premium versus a WL Bank 10 year issued on 15 March, for example, was seen at around 6bp.

A final book update put demand at some EUR550m, excluding joint lead manager interest, while the pricing was set at 7bp through.

“That shows they did not benefit from the newly-rekindled demand that last week’s trades successfully did by going out with a higher new issue premium,” said a syndicate banker away from the leads, referring to how CFF, ABN Amro and ING achieved strong order books last week on the back of higher new issue premiums than had hitherto been offered.

He also expressed surprise that, on the back of the only modest oversubscription, the spread had been tightened 2bp.

Another banker suggested that the subdued investor response could be the result of uniquely German factors.

“Pfandbriefe have been particularly active this year,” he said, “and there is the possibility that they will be the most affected by the cutback in ECB orders.”

Two French issuers are set to test the market tomorrow, going head to head in seven years: HSBC SFH (France) is due with a benchmark in the maturity, while Axa Bank Europe SCF has included a seven year alongside a 15 year in a dual-tranche transaction.

HSBC’s leads are ABN Amro, Banca IMI, CIBC, HSBC, LBBW, Lloyds, Santander, SG and Swedbank, while Axa has mandated Commerzbank, Crédit Agricole, INGF, Natixis, SG and UniCredit.

Austria’s Erste Group Bank is planning an eight year mortgage Pfandbrief via BayernLB, Danske, Erste, Helaba and Natixis.

“The market’s not exactly looking enthusiastic after Commerzbank,” said a syndicate banker. “It’ll be intriguing to see how having two French in seven years plays out, and whether Erste ends up paying a higher spread than it did for a successful 10 year in January for its eight year.”

“This is definitely a shaken-up market.”

However, with a slew of FIG deals due in other asset classes, issuers appear keen to raise funding soon, concerned that conditions could deteriorate further.

“Everyone recognises that the conditions we have been enjoying for years is over now,” said a FIG syndicate banker. “Everyone is printing, everyone is taking as much as possible, everyone is ready to pay up to raise money – and those that haven’t done yet are asking themselves, am I making a mistake in waiting?”

Bank of Montreal joined a spate of sterling supply, pricing a £400m (EUR459m, C$721m) five year floating rate note at 28bp over Libor, following guidance of the 30bp area. Barclays, BMO, HSBC and Lloyds were leads.

The new issue comes after a £1bn three year FRN from Santander UK on Friday and a £1bn five year from Nationwide Building Society on Thursday, the latter of which was priced at 26bp over. SpareBank 1 Boligkreditt is roadshowing a five year sterling issue whose format, either fixed or floating, has not been finalised.

A debut covered bond from Virgin Money off a EUR7bn programme could emerge soon, with Moody’s and Fitch having today announced anticipated triple-A ratings – based on an assumed £500m five year issue.