A €500m no-grow 10 year covered bond for Austria’s Bawag PSK impressed today (Tuesday), attracting a peak €2bn of demand in little over an hour to achieve pricing flat to fair value and close to traditionally stronger names, while DNB is due tomorrow with a seven year euro benchmark.

After a mandate announcement for Bawag PSK yesterday (Monday) – which was a public holiday in the UK and some EU countries – leads Commerzbank, Helaba, IMI-Intesa Sanpaolo, LBBW and UniCredit this morning went out with initial guidance of the mid-swaps plus 3bp area for a €500m no-grow May 2031 mortgage covered bond. After 25 minutes they reported books above €1bn, excluding joint lead manager interest, and after around one hour and 10 minutes they set the spread at minus 1bp on the back of more than €2bn of demand, excluding JLM interest. The final book was above €1.7bn.

A syndicate banker away from the leads said the speed of execution was impressive.

“I don’t think I’m insulting anyone if I say that historically their deals have not always been the best,” he added, “but there was none of that today. And it is a good price for them, more or less in line with Erste and many of the Germans, too.

“Not so many years ago, Austria was like Germany with a pick-up,” he added, “but that has gone now.”

Another syndicate banker away from the leads put the minus 1bp spread flat to fair value and said the execution strategy and outcome had gone just as he had advised and anticipated. According to pre-announcement comparables circulated by the leads, Bawag PSK paper from 2028 out to 2035 was all trading at minus 2bp, mid, while UniCredit Bank Austria June 2030s were also at minus 2bp.

“€1.7bn is more than decently subscribed,” said the syndicate banker. “It is again symptomatic of the ongoing supply/demand imbalance, with investors having little choice but to buy.

“There are signs of life,” he added, “but we are still miles behind last year’s numbers.”

With four euro benchmarks totalling €2.75bn last week, last month’s supply reached €8bn – similar to April 2020, but year-to-date supply, at some €30bn, remains the lowest since 2009, according to ABN Amro senior fixed income strategist Joost Beaumont. He noted that €9bn of euro benchmark redemptions are due this month, all in the second half of May.

“It remains to be seen whether issuance will be in line with redemptions, implying that net supply will probably be balanced in May (at best),” said Beaumont. “Therefore, scarcity will remain name of the game, which should continue to exert downward pressure on spreads.”

DNB Boligkreditt is set to provide imminent supply, with Barclays, Crédit Agricole, Deutsche, DNB, NordLB and UBS mandated for a seven year euro benchmark that is expected tomorrow (Wednesday). The Norwegian issuer, which typically sells €1.5bn-plus benchmarks, last tapped the euro market with a €1.5bn 10 year green covered bond on 14 January at 6bp over mid-swaps.

According to a syndicate banker at one of the mandated leads, the January 2031s were today quoted at mid-swaps flat, as were DNB’s October 2027s.

Another syndicate banker said he was aware of at least one more project “cooking”.

“So this could be a sort of decent week.”