Rabobank drew a combined EUR2.4bn of orders to an eight and 20 year deal today (Wednesday), while a EUR800m book for DG Hyp long fives made it the most oversubscribed Pfandbrief in weeks – despite Eurosystem orders being cut further, to 30%. An Sbanken debut is expected tomorrow.

Syndicate bankers at lead managers of today’s and yesterday’s deals said the Eurosystem had put in orders equivalent to 30% of the new issues, a reduction from the 40% of recent weeks’ issuance. The previous 40% share was in turn introduced only around a month ago in a reduction from what had typically been orders for 50% of issues earlier this year and before the overall monthly asset purchase programme (APP) target was lowered from EUR60bn to EUR30bn from January.

One syndicate banker, for example, said the Eurosystem order on a deal he was involved in was 30% at initial price guidance and remained at that percentage at the tighter re-offer level. He added that he would not have expected the Eurosystem order to have increased in line with any increase in the planned size of the deal, but remained at 30% of the initial deal size.

In aggregate, the moves from 50% to 40% and then 40% to 30% represent a 40% cut in Eurosystem orders, equivalent to EUR100m less for a EUR500m deal, a decrease from EUR250m to EUR150m, or EUR200m for a EUR1bn deal, down from EUR500m to EUR300m.

Market participants have been watching closely for any evidence of the ECB pulling back from the market ahead of the earliest APP end-date of September, given the anticipated impact on demand and especially spreads.

Another syndicate banker said that the further downgrading of the Eurosystem’s orders make sense.

“It’s the end of the party,” he said. “The music is stopping.”

The ECB’s retreat was first evident on Pfandbriefe for WL Bank and Aareal, while German deals issued both before and afterwards struggled to achieve significant oversubscription or comfortable tightening during execution.

However, DG Hypo was able to attract over EUR800m of demand from 50-plus accounts, excluding joint lead manager interest, to a EUR500m June 2023 Pfandbrief today, and could tighten pricing from the minus 9bp area to minus 11bp, while paying a new issue premium of around 7bp.

“I was positively surprised how it went,” said a syndicate banker away from the leads. “I expected it to struggle a bit more, also because five years did not seem to be the most in demand lately.

“And the new issue premium of up to 7bp is at the tight end of what we have seen.”

A syndicate banker at one of leads DZ, LBBW, NordLB, SG and UniCredit also put the NIP at 7bp, based on June 2023 secondaries from Helaba and MünchenerHyp, and a March 2023 WL all trading at minus 18bp, mid. He noted that, contrary to the experience of recent new issues, investors were less interested in comparing the pricing to a more recent comparable, namely a March 2023 from Helaba issued a month ago that was trading at minus 15bp.

However, he said that when the syndicate was tightening from the initial guidance of minus 9bp and considering whether to set pricing at minus 11bp, or at minus 11bp plus or minus 1bp, it quickly became clear that a significant number of quality accounts would drop from the book at minus 12bp, so pricing was then set at minus 11bp.

“It was a very nice success given the recent travails of the German sector,” he added.

Rabobank achieved a EUR2bn size for dual-tranche issue, splitting the deal into EUR750m eight and EUR1.25bn 20 year pieces on the back of a combined EUR2.2bn of demand.

Initial guidance was the minus 4bp area for the shorter tranche and the plus 10bp area for the longer tranche. A syndicate banker at one of leads Crédit Agricole, Deutsche, NatWest, Rabobank and UBS said that, based on these levels, they could relatively quickly communicate books of EUR2bn and then set the spreads at minus 5bp for the eight year and plus 8bp or the 20 year.

“The idea was to show your cards and then let investors decide,” he said, with demand ultimately totalling some EUR2.4bn.

“We were happily surprised on the 20 year, that we were able to do EUR1.25bn at 8bp, which is exactly the same as ABN Amro did two weeks ago, even if markets are a little softer.”

Rabobank’s compatriot priced its EUR1.25bn 20 year at 8bp over on 4 April.

The lead syndicate banker said demand for the very long end in covered bonds has been boosted by a lack of overall supply and good interest from insurance companies once a yield of 1.4%-1.5% is achieved. ABN Amro’s 20 year was still trading at around 8bp, mid, and he said that was the obvious comparable for Rabobank.

He said that there was greater price sensitivity on the eight year, with comparables more complicated. While seven and 10 year Rabobank benchmarks issued last year and this January, respectively, offered references, an HSBC SFH seven year sold on Tuesday of last week (10 April) at minus 7bp was a focus for investors.

“And even if it was issued only a few business days ago, investors want a premium,” he added.

Rabobank’s 10 year also softened 2bp-3bp after the announcement of the new issue yesterday (Tuesday) afternoon, to minus 5bp-minus 4bp, with investors resisting tighter pricing than this for the new issue.

“This is why we had the price sensitivity,” he said, “along with concerns that the covered bond market may yet go another leg wider.”

“But at the end of the day getting a EUR2bn trade done when the market is not particularly strong, including a EUR1.25bn 20 year at 8bp, is an achievement.”

Sbanken is expected soon with its debut euro benchmark, after it today announced plans for a EUR500m no-grow deal upon completion of a roadshow yesterday. It said the balance of feedback pointed towards a five year maturity and launch is expected in the near future, subject to market conditions.

Natixis, Nordea, LBBW and UniCredit are leads for the Norwegian covered bond.