RLB OÖ to follow in 15s, with second big week expected
Raiffeisenlandesbank Oberösterreich (RLB OÖ) has announced plans to issue a €500m no-grow 15 year deal early next week, which some syndicate bankers expect to be even busier than this week’s reopening, which saw nine euro benchmarks totaling more than €10bn hit the market.
The Austrian issuer has mandated DekaBank, DZ, Erste, RBI and UniCredit for the trade, which was announced today (Friday) for launch in the near future, subject to market conditions.
The deal is set to come after a €500m 15 year transaction from peer RLB NÖ-Wien on Wednesday, which, although twice subscribed, had the smallest order book of all euro benchmarks this week.
“It didn’t perform significantly,” said a syndicate banker at one of the leads, “which needs to be taken into account when doing a second one of the same kind for a less well known issuer.”
However, he said it is safe to assume the market will be strong enough to support the transaction, even though a 15 year maturity is “not exactly common currency”.
“A 10 year might have been easier,” he added, “but I understand each and every treasurer who tells us a 15 year under these circumstances is something you cannot refuse!”
RLB NÖ-Wien’s new January 2035 issue was re-offered at 7bp over and quoted at 6.5bp, mid, according to pre-announcement comparables circulated by RLB OÖ’s leads. The longest-dated paper of RLB OÖ cited were July 2028s at 4bp over, marginally wider than RLB NÖ-Wien paper in the same part of the curve.
Part of a Crédit Agricole Italia dual-tranche issue yesterday (Thursday) was a 25 year, the longest euro benchmark since the onset of the financial crisis, and Karsten Rühlmann, senior investment analyst, LBBW, noted that the 2020 new year had largely picked up where 2019 left off, with a focus geared towards longer-dated issues maturing in seven to 10 years or later, with tenors of 10 years or more constituting over half the week’s issuance.
“One possible reason for the long maturities is the still-negative yield environment,” he said.
In total, nine euro benchmarks were sold this week, taking issuance to €10.25bn, on the back of over €20bn of demand. This compares to €6.5bn of supply in the first week of euro issuance in 2019, although that was from 2 to 4 January.
Joost Beaumont, senior fixed income strategist at ABN Amro, noted that most deals have held steady in the secondary market, with spreads stable to slightly tighter.
“Overall, the covered bond market has made a strong start to the year,” he said. “New issue conditions are very favourable, as investor appetite is healthy across countries and across the curve, allowing most issuers to print deals close to fair value.”
CBPP3 meanwhile remains a supportive factor, with Rühlmann noting that central banks and official institutions had taken an average 23% share of the benchmarks for which distribution statistics were available.
A syndicate banker said the market would not be any less significantly active next week, as around six to 10 new euro benchmarks could be expected to be launched.
“This market is as good as it gets,” he said, “with high liquidity and strong demand across the board. What more could you want?”
He said that pending no further re-escalation of tensions in the Middle East over the weekend, conditions should continue to support the covered bond market for the near future.
“You might even get a bit of tailwind on the rates front,” he added, “and unless things turn significantly sour, we should be doing OK.”
Another syndicate banker said he expects supply next week to be even higher.
“A lot of issuers have favoured higher beta products like senior non-preferred this week rather than covered,” he added, “and I think they will potentially try to catch up there next week.”