La Banque Postale positive yield helps market kick on
La Banque Postale attracted €1.3bn of orders to a €1bn 10 year covered bond and was able to tighten pricing by 3bp today (Monday), in contrast to a pair of underwhelming trades last week, with demand boosted by a marginally positive return made possible by a back-up in yields.
Although Axa Home Loan SFH and NIBC launched successful 10 year trades last Tuesday, later in the week Deutsche Pfandbriefbank (pbb) €500m six year and Hypo Tirol €500m seven year deals were not fully subscribed. Today’s oversubscribed trade was therefore welcomed by syndicate bankers.
“This result was the kick the market needed after a couple of disappointing deals last week,” said a syndicate banker at one of La Banque Postale Home Loan SFH’s leads.
After announcing the mandate this morning, DekaBank, LBBW, Natixis, NatWest, Santander and UniCredit went out with guidance of the mid-swaps plus 11bp area for the euro benchmark-sized 10 year obligations de financement l’habitat transaction. After around one hour, they reported books over €1bn, excluding joint lead manager interest, and after around two hours, the spread was revised to the 9bp area (+/-1bp) on the back of over €1.4bn orders, excluding JLM interest. After around two and a half hours, the deal size was set at €1bn on the back of a €1.5bn book. It was ultimately priced at 8bp on the back of over €1.3bn of orders good at re-offer, excluding JLM interest.
Bankers had suggested that the yields and signatures of last week’s less trades had contributed to their fate, and a syndicate banker away from today’s deal suggested La Banque Postale’s success confirmed this.
“The difference between this and what happened last week is that La Banque Postale is a very good name, and the positive yield here makes some difference for investors,” he said.
A syndicate banker at one La Banque Postale’s leads said agreed the deal was helped by its positive yield, of 0.025%, which he noted was enabled by a back-up in yields last week – with the yield on the 10 year Bund more than 10bp higher today than a week ago – as well as the selection of tenor, timing and the strength of the issuer’s name.
“A lot of accounts that were on the sidelines saw the positive yield as an opportunity to come in,” he said.
“La Banque Postale is a fairly infrequent issuer,” he added, “but when it comes to the market it always gets a good response from investors.”
He saw fair value at around 6bp-7bp based on CRH’s recent October 2029 deal trading at 6bp as well as La Banque Postale’s February 2028 and October 2028 paper at 4bp and 5bp, respectively, implying a new issue premium of 1bp-2bp. He said the spread to OATs was 20bp-21bp.
“Anything with a two handle for French investors is obviously welcome,” he added, “and given it’s a French issuer it tends to carry quite a bit of domestic support in that regard.”
Sparebanken Sør Boligkreddit is in the pipeline with the latest Norwegian green covered bond with a roadshow for a EUR500m no-grow five to year transaction. Banca Popolare dell’Alto Adige (Volksbank) will tomorrow (Tuesday) finish a roadshow for its debut covered bond, a €300m transaction with an intermediate maturity.
Despite La Banque Postale’s success, a syndicate banker was cautious about the outlook, with investors expected to continue to be selective.
“Some issuers who are not in the first row will take a harder look at the market because it’s now trickier to get their deals done,” he said.
“Investors will also look at Brexit developments,” he added, “meaning it may be quieter this week.”