The Covered Bond Report

News, analysis, data

Near-indiscriminate buying helps five compress NIPs

“Crazy” was the typical verdict from syndicate bankers on a day when some EUR12bn of orders were placed for five covered bonds totalling EUR6bn and five more were mandated for launch soon, as near-indiscriminate buying allowed issuers to achieve low new issue premiums.

RBC imageToday’s supply came on top of three trades totalling EUR2bn yesterday (Monday) and a buoyant wider market – in SSAs, Spain amassed more than EUR47bn of orders to a new 10 year Bonos, for example.

A EUR1.75bn five year covered bond for Royal Bank of Canada (RBC) today was the biggest single-tranche euro benchmark of the year, but paid a negligible new issue premium despite coming 2bp inside three earlier but smaller five year Canadian benchmarks.

Crédit Mutuel-CIC Home Loan SFH alone attracted some EUR4.5bn of demand to a EUR2bn two-tranche, five and a quarter and 10 year trade, tightening pricing 4bp on each to end up at new issue premiums of only around 1bp.

National Australia Bank (NAB) issued a EUR1.25bn seven year deal on the back of over EUR2bn of orders, while Länsförsäkringar (LF) Hypotek and Raiffeisenlandesbank Niederoesterreich-Wien (RLB NÖ-Wien) enjoyed demand of around EUR1.5bn apiece for their EUR500m no-grow seven and 10 year trades, respectively.

“I saw four trades in the market this morning and after the fifth was announced I expected the two second tier names – LF and RLB NÖ-Wien – to suffer,” said a syndicate banker. “How wrong I was! These were the first ones saying books were above EUR750m or whatever.”

Syndicate bankers again cited the widening of covered bonds and SSAs in the wake of the end of net new APP buying as key to the wall of money now being put to work.

“Investors are underinvested and it feels like this repricing we’ve seen across SSA and covereds is just so welcome,” said one. “The investors coming into the trades are coming into all the trades and for the same amount – they aren’t buying one rather than the other, even though they know there’s more to come.

“It makes sense because they have tonnes of cash, but it’s crazy in a sense because not long ago more than three trades in a day were supported. But this week we’ve seen plenty already and they’ve all tightened 3bp-4bp and there is more to come, but it all feels fine and we still see good tightening in secondaries.”

Royal Bank of Canada’s EUR1.75bn five year deal was launched with initial guidance of the mid-swaps plus 20bp area – the same level as five year deals for Bank of Nova Scotia and National Bank of Canada on 4 and 8 January, respectively, but without the “will price in range” (WPIR) language of its predecessors, who limited any tightening to 2bp, meaning that they would not have come inside the 18bp over spread of a Bank of Montreal EUR1.25bn five year on 3 January.

RBC’s books were above EUR2bn within an hour and on the back of EUR2.9bn of demand guidance was revised to 17bp plus or minus 1bp, WPIR. The deal was ultimately priced at 16bp over on the back of a final book of over EUR2.75bn, pre-reconciliation.

“People expected an 18bp print, but the book exploded,” said a lead syndicate banker.

He said that the new issue premium was minimal, with the previous five year Canadian deals trading at around 15bp-16bp over, and another lead banker put the NIP at 1bp, noting that RBC’s level was helped by it – with TD – being regarded as the very top names in Canada.

Crédit Mutuel-CIC Home Loan SFH went out with guidance of the 17bp area for its April 2024 tranche and the 27bp area for its 10 year. It revised guidance to 14bp and 24bp, respectively, plus or minus 1bp, WPIR, on the back of books of above EUR3bn and around EUR2bn, and then priced the two tranches at 13bp and 23bp on the back of books of over EUR2.7bn, comprising over 100 accounts, and over EUR1.8bn, with around 80 accounts. A lead syndicate banker put the new issue premium on the shorter tranche at flat to 1bp, and 1bp-1.5bp for the longer.

“The day has been amazing,” he said.

LF Hypotek went out with guidance of the 25bp area for its seven year EUR500m no-grow issue and priced the new issue at 22bp over on the back of books above EUR1.5bn. A syndicate banker at one of the leads put the new issue premium at 3bp.

He said the issuer benefited from being the first Swede of the year and also the first Nordic name in this week’s buoyant market, noting that LF had probably achieved a higher level of oversubscription than normal in spite of the competing supply.

RLB NÖ-Wien priced its EUR500m no-grow 10 year at 18bp over on the back of more than EUR1.4bn of orders, following guidance of the 21bp area, while NAB tightened pricing from guidance of 37bp to 33bp for its EUR1.25bn seven year.

Four more issuers are expected to tap the market as early as tomorrow: de Volksbank, DZ Hyp, FCDQ and SpareBank 1 Boligkreditt.

De Volksbank is planning a EUR500m no-grow seven year via Credit Suisse, Rabobank, SG and UniCredit. DZ Hyp has mandated ABN Amro, DZ, LBBW, NordLB and SG for a 10 year mortgage Pfandbrief.

Fédération des caisses Desjardins du Québec is planning a five year euro benchmark via BNP Paribas, Barclays, Commerzbank and Natixis. And SpareBank 1 has mandated Citi, Crédit Agricole, LBBW and Nordea for a 10 year euro benchmark.

Banca Monte dei Paschi di Siena (Banca MPS) confirmed plans to issue a covered bond, and has mandated BNP Paribas, Credit Suisse, MPS, NatWest and UniCredit for a medium term deal that is expected around Thursday.

When the troubled Italian bank floated plans to issue an OBG 10 days ago, some market participants expressed scepticism about its prospects, but thanks to the upturn in sentiment its chances of success are deemed to have risen.

“If they want to do something in the early part of the year, it’s probably now or never,” said one syndicate banker.