NN Bank is set to extend its curve with a EUR500m 10 year covered bond tomorrow (Tuesday), kicking off what could be an active second half of September, in anticipation of a possible yet indeterminate cut to CBPP3 buying. Aareal meanwhile printed a £250m issue.

Nationale-Nederlanden Bank (NN Bank) announced a mandate this morning for the EUR500m no-grow 10 year conditional pass-through (CPT) issue, via leads ABN Amro, ING, LBBW, Natixis and SG. Syndicate bankers at the leads said the deal will be launched tomorrow, subject to market conditions.

The new issue will be NN Bank’s third benchmark covered bond, following an inaugural EUR500m seven year issue in October 2017 and a EUR500m long seven year in June. The NN Bank October 2024s were seen today at minus 1bp, mid, and the September 2025s at 4bp.

A syndicate banker at one of the leads said the new 10 year issue will develop the issuer’s curve

The deal will be the second 10 year euro benchmark covered bond from the Netherlands this month, following a EUR500m CPT issue for NIBC on 4 September. The NIBC September 2028s were priced at 15bp and seen at 14bp, mid, today.

“There is a good argument in favour of seeing a tighter print in comparison to the NIBC,” said a syndicate banker at one of the leads. “Given NN Bank’s better senior unsecured rating, credit-wise they should print tighter, so I’m hoping for at least a little bit of differentiation.”

NN Bank is rated A/A- (S&P/Fitch) whereas NIBC is rated BBB/BBB (S&P/Fitch).

The syndicate banker added that NIBC’s deal had shown that a 10 year Dutch CPT covered bond should work, observing that market conditions were more or less unchanged from early September.

No other euro benchmark covered bonds had been announced for imminent execution at the time of writing – although three issuers will embark on deal-related roadshows this week – and some syndicate bankers were surprised that more deals had not emerged today, given euro covered bond issuance is expected to be relatively heavy this week and next.

The ECB will on 1 October reduce its monthly target for QE purchases from EUR30bn to EUR15bn. Bankers acknowledged that it is uncertain when or if the Eurosystem will consequently reduce the size of its orders for new covered bond issues on the primary market – from the current typical order size of 30% – but said the possibility of such a reduction is likely to ensure many issuers consider launching deals before the end of this month.

“If the ECB were to reduce its participation from October onward, there is a very good argument to look at the market now,” said a syndicate banker. “There remains a degree of uncertainty when this will start – will it happen in any bookbuildings from 1 October, or will it even start before then?”

Aareal Bank leads Goldman Sachs, HSBC and Nomura launched the June 2022 issue with guidance of the Gilts plus 65bp area this morning. The spread was ultimately set at 63bp and the size at £250m (EUR281m).

The deal is Aareal’s third public sterling covered bond, with its last a £250m three year priced at 62bp over Gilts in September 2017.