The Covered Bond Report

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SG a blow-out as investors seek paper at wider levels

SG drew over EUR3bn of demand to a EUR1bn eight year deal today (Monday), while PKO and pbb achieved EUR1bn-plus books for EUR500m no-grow trades, with a lack of supply and attractive wider levels having turned what was a buyers’ market into a sellers’ market, as one banker summed up.

SG imageSociété Générale SFH was also able to keep the new issue premium on its trade as low as 2bp, when it tightened pricing from initial guidance of the 23bp over mid-swaps area to 19bp over on the back of the strong demand.

“We have started to see new issue premiums come down for the first time,” said a banker away from today’s deals.

This follows the repricing of covered bond curves – in particular those that had benefited most from CBPP3 – in the first couple of weeks of the year, which has attracted investors back into the asset class. Meanwhile, only two benchmark covered bonds were launched last week and the wider euro fixed income markets were also characterised by a lack of supply.

“The market had been weak for some quite some time, with some quite significant repricing,” said a syndicate banker on one of today’s deals, “and the market has all of a sudden gotten a lot more confidence that the withdrawal of the ECB is not going to lead to continued widening – we are now seeing stability and indeed performance last week.

“This has all contributed to the general tone in the market being significantly better – across covereds, rate product, credit, the market seems to be exceptionally strong right now. And investors have said to themselves that actually at these sort of levels, now we know there’s some stability, we really like covered bonds.”

Leads Banca IMI, LBBW, Nordea, NatWest, Rabobank and SG opened books on the French eight year euro benchmark trade this morning with guidance of the mid-swaps plus 23bp area, which a lead syndicate banker said represented a 6bp premium versus fair value of 17bp, with SG SFH January 2026s at 17bp, mid, pre-announcement, its October 2027s at 15bp and January 2028s at 16bp. A Crédit Agricole Home Loan SFH 10 year issued on 7 January at 24bp was quoted at 22bp.

Orders above EUR2bn were cited in the first book update and the guidance was revised to 20bp, plus or minus 1bp, and the deal ultimately sized at EUR1bn and priced at 19bp over, implying a 2bp new issue premium, according to the lead banker, although others saw it marginally higher, at 3bp.

The 4bp move in pricing from the middle of initial guidance to re-offer is at the high end of what has been seen this year, with the issuer having chosen not to limit its flexibility through employing “will price in range” language from the start.

“We didn’t necessarily expect to move 4bp, but we knew the market was in good shape and didn’t want to limit ourselves,” said the lead banker.

Deutsche Pfandbriefbank (pbb) attracted some EUR1.6bn of orders, including EUR50m joint lead manager interest, to its EUR500m no-grow five year mortgage Pfandbrief via Crédit Agricole, Deutsche, Erste, NordLB and UniCredit.

The leads went out with guidance of mid-swaps plus 9bp plus or minus 1bp, will price in range, and priced it at 8bp over, following an earlier book update of above EUR600m. A lead banker put fair value at 4bp over, implying a final new issue premium of 4bp. He noted that an important reference was a EUR500m long three year for LBBW last Wednesday that was priced at 1bp over mid-swaps, noting that pbb tends to price wider than its compatriot.

PKO Bank Hipoteczny priced a EUR500m (PLN2.1bn) no-grow short three year covered bond at 34bp over mid-swaps, following initial guidance of the 37bp area. The guidance had been revised to 35bp plus or minus 1bp, will price in range, with books above EUR950m, excluding joint lead manager interest, and orders ultimately totalled more than EUR1bn.

The November 2021 issue is PKO’s shortest-dated benchmark and a syndicate banker at one of PKO’s leads said that it was difficult to calculate fair value given differences over the steepness of the curve at the short end. Its outstanding June 2022s were quoted at 37bp over, mid, pre-announcement. HSBC, LBBW, PKO, RBI, SG and UniCredit were leads.

More issuers are expected to seek to tap into the buoyant conditions, and Crédit Mutuel-CIC Home Loan SFH already this afternoon announced a dual-tranche transaction that is expected tomorrow (Tuesday). Barclays, Citi, HSBC and Natixis have the mandate for the 5.25 and 10 year trade.