Credito Emiliano is set to launch the first Italian covered bond since July as early as tomorrow (Thursday), encouraged by market conditions, although the first peripheral benchmark since October, a EUR500m six year cédulas for Deutsche Bank SAE, met with a modest response today.

The last obbligazioni bancarie garantite (OBG) issuance comprised four deals in a fortnight in July 2018, with a EUR1bn seven year Intesa Sanpaolo trade being followed up by three EUR500m deals from Mediobanca, BPER and Banca Popolare di Milano. OBG supply dried up after the summer as a budget dispute between the Italian government and the EU escalated from September onwards.

A deal was reached between the two sides in December, and the Italian government is now moving to support the troubled Banca Carige.

The Credito Emiliano (Credem) mandate was announced this afternoon on the back of better market conditions since Friday.

“The market is in good shape,” said a syndicate banker at one of Credem’s mandated leads. “Covered bonds have been going quite well and we have reached in some cases an inflection point in terms of spread.

“Italy is a different animal, but we have seen BPTs 5bp-7bp tighter today. So as far as today is concerned, we have a nice platform.”

Barclays, Crédit Agricole, SG and UniCredit have the mandate for the five year issue, which is expected tomorrow. The issuer held a non-deal roadshow with Barclays in October to reintroduce its covered bond programme.

Credem’s last OBG benchmark was a EUR750m seven year issued in October 2014, and the lead banker said the rarity of the name should help the deal’s reception.

“It is also one of the soundest Italian banks,” he said, noting that Credem has one of the lowest NPL ratios and highest SREP buffers among Italian banks.

He suggested that the level versus BTPs would be a key consideration for investors. Intesa’s trade came some 110bp inside the sovereign and unlike typical European jurisdictions, Italian covered bonds remain inside government bonds.

Issued at 63bp over mid-swaps in July, Intesa’s July 2025s were quoted at 65bp over before Credem’s mandate was announced, while its March 2023s were at 51bp over. Credem November 2021s, the issuer’s longest outstanding benchmark, were quoted at 67bp over. UBI Banca July 2024s were at 72bp and Cariparma September June 2023s at 62bp.

Deutsche Bank SAE issued the first peripheral benchmark since October today (Wednesday), a EUR500m six year cédulas hipotecarias priced at 57bp over mid-swaps – the middle of guidance of the 57bp area – on the back of a book of almost EUR650m, according to a syndicate banker at one of leads Commerzbank, Deutsche Bank, ING, Natixis and Santander. The issuer had referred to a benchmark size in its initial announcement and had been considering EUR750m if demand had been sufficient, he said.

“It was a very busy day,” said the lead banker. “We had a lot of guys saying, OK, we’re just looking at it now – one could tell every investor had quite a lot in front of them.”

Bankers away from the leads said the pricing of the 57bp area had seemed reasonable, offering a new issue premium of up to 12bp, which the lead banker agreed with, putting fair value at around 45bp over based on an outstanding March 2024 being quoted at 40.5bp, mid.

Deutsche Bank’s travails were cited as another possible cause of the subdued response to the deal, although one banker noted that historically the group’s covered bond new issuance had not been affected by similar headline risk. Another banker said it raised questions over appetite for cédulas at prevailing spreads.

The pricing was equivalent to 16bp over interpolated Bonos. The last peripheral benchmark covered bond was a EUR1bn 10 year from Santander in October, which was priced at 22bp over mid-swaps, some 50bp inside Bonos.

As with Credem, the market’s better tone was cited as a reason for the deal’s timing.

“The market opened on a stable note,” said the lead banker. “We were aware of an upcoming busy pipeline as we’ve had two nice trading sessions already this week, and a few weaker credits started looking at the market quite intensively, so we just wanted to take this window for us.”

The issuer considered the five to seven year part of the curve where demand has been evident, according to the lead banker, and chose the six year maturity for internal reasons, including that it has the EUR1bn March 2024 outstanding, which it launched last September.