A EUR2.5bn book and zero NIP for a Hypo Vorarlberg EUR500m no-grow eight year deal today (Tuesday) suggested covered bonds continue to shrug off market unease elsewhere, but the execution of a UniCredit HVB 15 year benchmark was deemed to offer a more realistic picture of demand.

Covered bond issuance last week proved resilient to wider concerns in financial markets over US-China trade tensions, and the Austrian issuer’s trade achieved a similar success to a trio of deals last Tuesday.

Leads BayernLB, DekaBank, Erste, LBBW, RBI and UniCredit opened books on Hypo Vorarlberg’s EUR500m no-grow eight year mortgage Pfandbrief with initial guidance of the 11bp over mid-swaps area. Books were above EUR1.5bn within half an hour and guidance was at that stage revised to the 8bp area. The spread was then fixed at 6bp after a little less than an hour on the back of more than EUR2bn of orders, before the books were closed after less than two hours at EUR2.5bn, pre-reconciliation and including EUR165m joint lead manager interest, with some 140 accounts involved.

A lead syndicate banker put the pricing of 6bp at roughly flat to slightly inside fair value, with the issuer’s July 2026s quoted at 6bp ahead of the deal’s announcement yesterday.

“This morning, for the first time, we were a bit worried that maybe it would be worth thinking about a wider starting point,” he said, “as we have now seen a couple of trading sessions with a discouraging tone, given all these talks between the US and China, and maybe there might be some effect on the low beta space as well as the credit and equity space.

“But as the book shows, it seems like investors don’t care what’s going on there, and they are still very greedy for material.”

He noted that the book included three-digit orders from prime names active in covered bonds who had previously passed on Hypo Vorarlberg, considering it too small or infrequent to cover. Bank treasuries have been very prominent in recent trades longer than 10 years, but asset managers and official institutions took a greater share of the Austrian eight year, he said, even if well over half of the accounts had participated in a EUR500m 15 year for Erste a week ago.

“A key investor who joined in size today said it doesn’t make sense to look for secondary paper anymore,” he added, “as he can’t get hold of it because there is nothing available, and when looking at five, six or seven years, it’s in some sectors deeply in minus territory, so he has to go longer, and eight and 10 years are the only things that fit these days.”

UniCredit Bank AG (HVB) this morning launched the latest long dated issue, a euro benchmark 15 year with initial guidance of the 10bp area, via DZ, Lloyds, NordLB, SG and UniCredit. The books were reported at being above EUR1bn after a little over half an hour, and after an hour and a half the spread was set at 8bp over and the size at EUR750m-EUR1bn on the back of some EUR1.6bn of orders, including EUR75m joint lead manager interest. The deal was ultimately sized at EUR1bn on the back of EUR1.8bn of demand.

“This was definitely less frantic than many other recent trades and Hypo Vorarlberg today,” said a syndicate banker at one of the leads, “the difference being that for the others the size was limited from the start – this was a benchmark so people knew it could be more than EUR500m, whereas the EUR500m no-grows attract fast money from those seeking an easy profit.

“There is nothing bad about it,” he added. “We had a EUR1.8bn in the end.”

He noted that by setting the spread relatively early in the process, the issuer had made it clear that it would be prioritising size rather than price, and he put the new issue premium at 2bp-3bp, based on fair value of 5bp-6bp over mid-swaps.

“It was another very well received long dated trade and the issuer was very happy,” he said.

A banker away from the leads said the more modest level of oversubscription experienced by the “benchmark” trade perhaps reflected investor demand more realistically than others.

“It’s interesting to see when you announce a trade that is not limited to EUR500m but is a ‘benchmark’, there is not so much inflation as in the EUR500m trades,” he said.

The banker said two core names are close to announcing mandates for long dated trades, although may wait until next week.

“On the one hand, they may want to give the market some days to digest what has been issued so far, because even if the recent trades were highly subscribed, there has been quite a bit of supply,” he said. “On the other hand, there is still enough money sitting on the fence and waiting for the next issue to come.”

Bank of Queensland will on Monday begin roadshowing a possible intermediate maturity CPT euro benchmark, in what would be only its second visit to the euro covered bond market after a debut in June 2017. BNP Paribas, Commerzbank, ING, NAB and UBS have the mandate.

And Bank of New Zealand could launch a euro benchmark after having mandated Barclays, NAB and UBS for investor meetings starting on 3 June ahead of a senior unsecured or covered bond in an intermediate maturity.