A €500m 20 year issue for RLB Steiermark was priced flat to guidance after no book updates today (Tuesday), while a UOB €750m eight year achieved only modest momentum, as covered bonds finally succumbed to tight valuations versus the SSA sector, as exemplified by a concurrent EU SURE trade.

Raiffeisen-Landesbank Steiermark (RLB Steiermark) leads Commerzbank, Crédit Agricole, DekaBank, LBBW and RBI opened books on the Austrian issuer’s €500m no-grow May 2041 deal, rated Aaa, this morning with guidance of the mid-swaps plus 7bp area, but did not provide a further update until two and a half hours later when the spread was set at 7bp.

The books were closed around three-quarters of an hour later, but no information on the book size was included in communications, leaving bankers away from the leads to surmise that the deal was barely subscribed, at best. The pricing was not only left in the middle of initial guidance, but also reflected a new issue premium of 4bp-5bp, based on where a lead syndicate banker saw fair value yesterday (Monday), when the deal was announced.

Singapore’s United Overseas Bank (UOB) was able to attract a €850m book to the longest-dated Singaporean covered bond yet and move pricing 2bp tighter, but even that fell short of the multiple-times oversubscription and tightening of around 4bp typically seen on new issues in recent months.

Some bankers had already warned in the past two weeks of some investor fatigue at the tight levels at which covered bonds have been trading, with valuations against the SSA sector in particular looking stretched. A UOB lead syndicate banker said this had been exacerbated by a widening of SSAs in the face of last week’s rates volatility.

“In the SSA space we have seen spreads widening,” he said. “This also deterred some investors to not invest in covered bonds, because the differential is no longer large enough – they needed a bit more juice to invest in the trade.”

UOB’s eight year was priced at 10bp over mid-swaps, versus minus 2bp for a €8.137bn long seven year tranche of the EU’s trade, while RLB Steiermark’s 7bp spread compared with 17bp for a €6bn long 25 year EU tranche.

“I suppose it was only a question of when SSA developments would spill over into covered,” said a syndicate banker away from today’s deals, “which it previously didn’t because of the technical supports.”

He said that a month ago RLB Steiermark’s rarity and 20 year offering would have fared much better, but that in today’s market the long-dated offering from the relatively “unknown” credit suffered.

“Normal rates investors are starting to get nervous,” he added, “so not enough care for such a trade.”

Syndicate bankers said it will be interesting to see how the situation develops, in particular what new issue premiums might be required. One suggested that a well known core or peripheral CBPP3-eligible name in a shorter maturity could still tap the market successfully.

Another lead banker on UOB’s trade noted that “on a day when others have struggled”, UOB was able to size its deal above the €500m implied by the initial “euro benchmark” announcement and tighten 2bp for the first eight year benchmark from a Singaporean issuer and the first Singaporean benchmark covered bond of 2021.

After a mandate announcement yesterday, leads BNP Paribas, HSBC, NordLB and UOB this morning went out with guidance of the mid-swaps plus 12bp area for the May 2021 Singaporean euro benchmark, rated Aaa/AAA (Moody’s/S&P). After almost two hours, the leads reported books above €675m, excluding joint lead manager interest, and after around three and a quarter hours, they set the spread at 10bp and the size at €750m on the back of books above €850m, including €10m JLM interest.

The lead banker acknowledged that demand had been dampened by the tight level versus SSAs that covered bonds in general are trading at, as highlighted by the seven year tranche of today’s EU deal. He also noted that the pricing of UOB’s eight year is also 7bp tighter than the issuer paid for a seven year in November – a €1bn deal that attracted some €2.1bn of demand in more advantageous market conditions.

“So they have crystallised very tight levels versus SSA names as well as other covered bonds,” he said.

“There is also a decent cost-saving versus where they print in senior, which is helpful for them,” he added. “And UOB has been able to maintain a very solid presence in the covered bond market, where it has been the most regular issuer out of Singapore.”

He put the new issue premium at around 1bp, although a syndicate banker at another of the leads said it was 2bp or even slightly higher, and a syndicate banker away from the leads said the inability to tighten from what was “a little more aggressive” starting point than on some recent deals was slightly disappointing.

“But getting another longer dated deal done, in the eight year part of the curve was good, with the extension of their curve,” he added. “And the concession paid was not very much, probably a couple of basis points, which in the context of long term funding for them is pretty good.”