Two new euro benchmarks hit the screens today (Thursday), a Bawag PSK €500m no-grow 15 year and a OP Mortgage Bank €1.25bn 10 year, making this week the busiest in the primary market since September, and bankers hailed the pricing levels and strong books achieved by the pair.

Bankers said the execution of the two deals demonstrates that although spreads continue to grind tighter, this has not deterred cash rich investors still hungry for bonds.

“Every new print is showing astonishingly tight levels,” said one, “and the longer you go, the higher the volume of demand, as was the case with Bawag today.”

After the Finnish issuer last week signalled to The CBR it was hoping to launch a benchmark covered bond before year-end, this morning, OP Mortgage Bank leads Barclays, Crédit Agricole, LBBW and OP Corporate Bank opened books for a euro benchmark-sized 10 year transaction with guidance of the mid-swaps plus 5bp area. After around 55 minutes, books were reported as being over €1.25bn, excluding JLM interest, and after around two hours and 45 minutes, the spread was set at 2bp, on the back of over €2.1bn demand, including €295m JLM interest.

The issue was ultimately sized at €1.25bn, on the back of over €2bn of demand, including €295m JLM interest, and the final book was over €2.1bn, including €295m JLM interest.

The new issue is OP Mortgage Bank’s second euro benchmark this year, following a €1bn long eight year in January, and the third from Finland overall in 2020, with Danske Finland having sold the first, a €1bn eight year in January.

Syndicate bankers away from the leads said the pricing was impressive, being only around 1bp wide of where a new 10 year German Pfandbrief might be executed.

“This is no doubt a phenomenally strong trade,” said one, “and the €1.25bn size is also impressive.”

The €1.25bn size is at the upper end of the issuer’s typical €1bn to €1.25bn range.

The banker said that considering the Finnish curve is extremely squeezed, Finnish comparables were less relevant in calculating fair value. Pre-announcement comparables circulated by the leads put OP’s June 2027s and February 2029s at minus 2.2bp and minus 1.8bp, respectively.

“It’s so squeezed, and it looks so rich,” he said, “so they obviously had to put a little more on it compared to where it is, but that’s perfectly fine.”

A lead banker said it priced with around 1bp of new issue premium.

“We could’ve priced tighter if they had gone for a smaller size,” he said.

“The market has been fairly benign and structurally undersupplied in the past few weeks,” he added, “OP has not done a lot in covereds, so this puts fundamental valuations slightly out of whack.”

After a mandate announcement yesterday (Wednesday), Bawag PSK leads DekaBank, Deutsche, NordLB, RBI and UniCredit this morning went out with guidance of the mid-swaps plus 8bp area for the €500m no-grow 15 year mortgage covered bond. They reported books above €1bn, excluding JLM interest, after around half an hour. After around an hour and a half the spread was set at 4bp on the back of over €1.8bn of demand, including €50m JLM interest, and the final order book was around €1.4bn.

Syndicate bankers away from the leads put fair value at 4bp-5bp based on the Austrian’s June 2034s at 3bp, implying zero to minus 1bp new issue premium, and said the pricing was impressive.

“It went really great,” said a syndicate banker away from the leads, “and wasn’t too far off where top tier Austrian names may have priced in this context.”

Two new euro benchmarks were launched this week before today’s pair, a €500m five year for Aegon on Monday and a €500m 10 year for de Volksbank yesterday, making it the busiest week for primary market issuance since the week ending 18 September.

“This week’s move in rates has been really helpful,” said a syndicate banker, “especially for guys like de Volksbank yesterday, which was a fabulous trade for them.”

The overall spread environment is very constructive, he said, with all recent deals performing in the secondary market, but he was sceptical as to whether this week’s momentum will carry over into next week.

“I’m not so sure,” he said, “but it could easily do so if issuers are willing.”