Austria’s Hypo Noe is expected to launch the first euro benchmark from outside of Canada or France in over two months tomorrow (Tuesday), a €500m no-grow seven year transaction, with the issuer hoping to capitalise on improving spread levels and relatively stable market conditions.

Since a €500m seven year deal for Eika Boligkreditt on 6 March, euro benchmark issuance has comprised exclusively Canadian and French supply. The last euro benchmark from any jurisdiction was a €1bn five year social bond from Caffil launched almost two weeks ago on 28 April.

Hypo Noe’s €500m no-grow seven year Austrian issue was announced today (Monday) and is expected to be launched tomorrow, subject to market conditions, via leads BNP Paribas, Commerzbank, Erste, LBBW and NordLB.

A lead syndicate banker said the mandate was announced this morning (Monday) on the back of fairly stable market conditions following a rally in US equities on Friday, while the covered bond market continues to remain technically supported against negative newsflow.

“You could argue that too much of the good news may have been priced in,” he said, “in a kind of ‘too much, too fast’ scenario, but the first response was to do the mandate announcement as the market was feeling quite constructive, and if everything goes to plan, we will open books tomorrow.”

According to pre-announcement comparables circulated by the leads, Hypo Noe October 2026 paper was at 17bp over mid-swaps, and similar tenors from other Austrian names were at around 15bp-17bp. CRH April 2027s, the only seven year benchmark to have been launched in the past two months, were quoted at 16bp. The last three euro benchmarks – from CFF, CRH and Caffil – were priced at progressively tighter spreads, with the latest from Caffil coming at a re-offer spread of 22bp.

The lead banker saw fair value for the upcoming issue in the high teens and said that on the basis of offering 2bp-3bp new issue premium, guidance is likely to be around the mid-20s.

“It might land in the low 20s,” he added, “maybe even a 20bp landing if the market continues to be supportive.”

A syndicate banker away from the leads said he was surprised to see a core European issuer approaching the market considering that spreads are still relatively elevated.

“Given where the French normally issue,” he said, “those series of trades in March and April were quite expensive for them. They still did them, but I would not have expected the likes of Hypo Noe to do so as well.”

As well as new issues coming at progressively tighter spreads, secondaries have tightened for three straight weeks, according to iBoxx indices. However, the majority of Eurozone issuers continue to have cheaper central bank refinancing options available to them, noted the syndicate banker, who said there is no obvious reason to tap the primary market.

“I would have been less surprised by something from Sweden or Norway,” he said, “but then again I understand their domestic markets may be a lot more interesting, or they’re doing something in senior rather than spending their ammunition on covered bonds.

“Having someone from very core Europe – even though it’s not the best Austrian issuer – is what’s most surprising. But it should be received well, at levels that are not the cheapest in town.”

He said the two day execution process was well-advised considering the size of the issuer.

“Not everyone out there can buy them,” he said, “so giving people the time to brush up their lines and get signatures in place to the extent they still need to is sound advice.”

The lead banker said that if further issuers elect to hit the primary market this week, it is likely to be second tier names of a similar calibre to Hypo Noe, as top tier names will rather opt for senior preferred issues or retained covered bonds.

Another syndicate banker said he was not aware of any other euro benchmarks in the pipeline for this week.

“This one was a surprise, but maybe there are more surprises around the corner,” he added.