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Exuberance moderates but pick-ups help keep books high

A further four euro benchmarks hit the euro market today (Wednesday), although their outcomes were less universally emphatic than yesterday. Pick-ups offered by Santander UK, Danske Finland and UniCredit nevertheless ensured strong demand against a backdrop of continued geopolitical uncertainty.

Today’s quartet followed the reopening of the euro benchmark yesterday (Tuesday), when four trades totaling €5bn all attracted peak demand above €2bn.

A syndicate banker said that although bookbuilding was slightly slower than yesterday, this did not indicate a saturated market, but rather reflected a busier market across other asset classes.

“I wouldn’t read too much into that,” he said, “the pipeline is still full, we were sweating today, and there will be no rest for the wicked for the next two days.”

Santander UK issued the first non-sterling covered bond benchmark from the UK since the country’s general election on 12 December and attracted over €3.25bn of demand, pre-reconciliation, ahead of the UK’s departure from the EU at the end of the month.

Leads BNP Paribas, LBBW, Nomura, Santander and UniCredit went out this morning with guidance of the mid-swaps plus 22bp area for a seven year benchmark. After around an hour, books were reported as being over €1bn, and after around an hour and 55 minutes, guidance was revised to 18bp+/-1bp, on the back of orders over €2.5bn. It was ultimately priced at 17bp and the issue size was fixed at €1.25bn, on the back of orders over €3.25bn, pre-reconciliation.

“With some clarity coming in the news recently surrounding Brexit – even if it’s not perceived as the best news, it’s still something – and in combination with the double-digit headline spread, this trade was welcomed,” said a lead syndicate banker.

A syndicate banker away from the leads said the 5bp move from the outset to final pricing was impressive, although the trade’s success was unsurprising.

“Given that UK risk offers a bit more pick-up,” he said, “I’m not surprised they got away with a very big book.”

The lead banker saw fair value for the trade at around 16bp, based on Lloyds’ March 2025 paper and June 2026 paper at 14bp and 18bp, respectively, implying 1bp of new issue premium.

Another lead banker said the deal could not be used as an indicator for the strength of UK risk, due to the strength of the Santander group.

“It worked well,” he said, “but simply because of the Santander name which everyone has lines for – this deal was going to work if it was in the UK or not.”

Danske Mortgage Bank leads ABN Amro, BNP Paribas, Danske, Erste and Santander went out this morning with guidance of the mid-swaps plus 11bp area for an eight year Finnish euro benchmark, and after around an hour and 15 minutes reported books in excess of €1bn, excluding joint lead manager interest. After around two hours, the guidance was revised to 8bp+/-1bp, WPIR, on the back of orders over €1.5bn, excluding JLM interest. The spread was ultimately set at 7bp and the issue size at €1bn on the back of over €1.8bn of demand, excluding JLM interest.

A syndicate banker at one of the leads said the Finnish transaction was supported by a very strong order book, which saw demand from particular bank treasuries.

“It wasn’t the usual bank treasuries, but granular bank treasuries that were very active in the book,” he said. “They really appreciated the maturity, which provided a slightly positive yield [0.06%].”

He added that arguably the issuer could have sought a greater size, but was nevertheless happy with the result.

“Other trades today have been bigger,” he said, “but €1bn on the back of a €1.9bn book – it’s a perfect trade.”

He saw fair value at 5bp-6bp, based on the issuer’s curve.

A banker away from the leads said Danske offered attractive value given that its pricing compensates for negative headlines it has faced.

After announcing its mandate yesterday, UniCredit Bank AG (HVB) leads Danske, Helaba, ING, LBBW and UniCredit went out this morning with guidance of the mid-swaps plus 10bp area for a 12 year euro mortgage Pfandbrief. After around 45 minutes, books were reported as being over €1bn, excluding JLM interest and after around an hour, guidance was revised to 8bp on the back of orders over €1.5bn, excluding JLM interest.

The spread was ultimately set at 6bp on the back of orders over €2.15bn, including €75m JLM interest, and the issue size was fixed at €1.25bn.

A syndicate banker at one of the leads noted the transaction had the strongest and fastest bookbuilding of supply from Eurozone issuers in the market today.

“It seemed to fit well with many central banks, bank treasuries and asset managers,” he said, “comprising a really, really, strong book.

“All in all we had 100 accounts or so involved in a 12 year Pfandbrief,” he added. “I can’t even recall the last time I’ve seen something like this.”

A syndicate banker away from the leads said a 12 year tenor was unusual for a Pfandbrief, but that ultimately, it would not differ hugely from a more standard 10 year and that the deal signaled the maturity could work, printing at 6bp, with 3bp-3.5bp of new issue premium.

“This was a pretty fair price for a trade beyond the 10 year mark,” he added.

Syndicate bankers at and away from the leads saw fair value at around 2bp-3bp.

“They’re paying a bit more premium,” said a syndicate banker at one of the leads, “which is fair enough, considering that HVB’s Italian parent is a factor for some.”

After also announcing its plans yesterday, RLB NÖ-Wien leads Barclays, Credit Agricole, Erste, LBBW and RBI went out this morning with guidance of the mid-swaps plus 11bp area for a 15 year €500m no-grow trade. After around an hour and 20 minutes, books were reported as being over €1bn, including €65m JLM interest, and after around an hour and 50 minutes, guidance was revised to 8bp+/-1bp, WPIR, on the back of orders over €1.2bn, including €65m JLM interest. The spread was ultimately fixed at 7bp on the back of over €1.2bn of demand, including €90m JLM interest, good at re-offer.

A syndicate banker away from the leads said that although the deal worked, it likely received the least demand of the four deals today for a combination of reasons, including an overly aggressive pricing strategy.

“With fair value at around 7bp, they offered only 4bp of new issue premium at the start,” he said. “In comparison, Danske and HVB were treating investors much fairer.

“It’s also not the best quality coming out of Austria,” he added. “Of course they wanted to follow on the heels of Erste yesterday, but a combination of credit, the tenor not being the most promising, and market traffic slowed this trade down.”

A syndicate banker away from the leads said that the trade may have performed better on another when the market was less congested.

“If an issuer asked me if Friday was a window for covered bonds this week,” he added, “I would’ve definitely said yes.”

Another lead syndicate banker said that in the context of the larger investor base that was available for Erste yesterday, RLB NÖ-Wien still managed to tighten and not overpay, although acknowledged that it was debatable if it might have been better holding off, particularly considering a volatile geopolitical climate.

“In relative terms, they did a good job,” he said. “Would it have been advisable to wait for a day? I don’t know.

“What I do know is that everyone is looking at 11am EST when Trump is giving a press conference, so in this sense, it’s still good to see that covereds are sought after again and again.”