RLB NÖ-Wien and pbb met diminished demand in the covered bond market today (Wednesday), with the former in particular puzzling bankers as it fell short of expectations, generating final demand of EUR650m-plus for a EUR500m eight year despite a final premium of 5bp.

The two issuers announced mandates for their trades yesterday (Tuesday) shortly after Aareal and Eika reopened the euro covered bond market with encouraging EUR500m seven year deals – which attracted EUR1bn and EUR1.3bn of demand, respectively – and this morning entered a seemingly unchanged market.

“However, while today was very much the same as yesterday market-wise, these transactions had a harder time,” said a syndicate banker. “For both trades you would have expected stronger dynamics, after yesterday’s successes.”

Raiffeisenlandesbank Niederösterreich-Wien (RLB NÖ-Wien) leads Commerzbank, DZ, Helaba, RBI and SG launched the EUR500m no-grow eight year public sector covered bond this morning with guidance of the mid-swaps plus 4bp area. After just over one and a half hours, the leads announced that books were over EUR500m, excluding joint lead manager interest.

Guidance was subsequently revised to 3bp plus or minus 1bp, before the spread was set at 3bp, with books closing above EUR650m.

“I was a bit surprised by this deal, as the IPTs seemed OK,” said a syndicate banker away from the leads. “The IPTs were sufficiently mid-swaps positive and I had the impression that they should have appealed to a sufficient number of people, but apparently not, and they were not able to go tighter than 3bp.

“It is a name that is not so familiar in the market, but Austrian deals have been going well from the big banks, and the eight year maturity should have been fine too, so I am a bit puzzled by this.”

The Austrian deal was deemed to have paid a new issue premium of around 5bp, with syndicate bankers citing RLB NÖ-Wien September 2024s at minus 5bp, mid, March 2025s at minus 3bp, and January 2028s at minus 1bp.

Syndicate bankers noted this is considerably more than the 1bp-2bp premiums paid by the first post-summer deals yesterday.

A syndicate banker at one of the leads said the starting premium had looked “more than reasonable” and should have allowed for a tighter print, and was also uncertain why the deal did not gather greater momentum.

“Plus 3bp is an OK achievement, even if it is not exactly what we had hoped for,” he said.

Deutsche Pfandbriefbank (pbb) leads Barclays, BayernLB, DZ, SG and UniCredit launched the EUR500m no-grow nine year mortgage Pfandbrief with guidance of the flat to mid-swaps area. After just over one hour, the leads announced that books had surpassed EUR500m.

The spread was subsequently set at minus 2bp with books above EUR760m, including EUR35m JLM interest.

Syndicate bankers said the slightly stronger demand for the German trade than for its Austrian counterpart was a positive outcome given its tighter outright spread and a perceived smaller concession.

Some syndicate bankers said the deal paid a new issue premium of around 3bp, extrapolating fair value from pbb May 2023s at minus 11bp, mid, and May 2024s at minus 9bp and the curves of fellow German issuers. Others, however, said the deal was priced flat to or 1bp inside fair value, citing pbb May 2028s at minus 2bp, while noting that this older outstanding has an off the run coupon.

The relatively limited demand for today’s deals cannot be attributed to investors having not returned from the summer break, syndicate bankers said, considering the larger books for yesterday’s covered bond issues and the blowout demand received for euro-denominated senior unsecured trades this week.

“It is definitely not because investors are not around, because we are seeing books of more than EUR4bn in the senior non-preferred market,” said a syndicate banker. “The covered bond market feels relatively strong, but it is not a blowout asset class at the moment.”

The Eurosystem’s orders for today’s covered bond trades were also of around 30% of the issue sizes, in line with recent deals.

Syndicate bankers that worked on the deals suggested that the fall in demand could be due to the issuers being from tighter-trading jurisdictions and, particularly in the case of pbb, relatively frequent names in the covered bond market, limiting investor demand.

“In the end both deals did comfortably, so this shouldn’t be a cause for concern,” said one. “You come to this market on a regular basis and sometimes you win, and sometimes you win a little less.”