Bausparkasse Wüstenrot was able to print a €300m eight year Austrian sub-benchmark today (Tuesday) to good demand in a subdued primary market, with covered bonds showing their safe haven status against a backdrop of rising geopolitical tensions, although the official pipeline is empty.

Societe Generale SFH successfully priced a €1.25bn seven year covered bond yesterday (Monday), but financial institutions otherwise refrained from issuing in euros as equity markets fell sharply and credit indices widened, with growing fears around conflict in Ukraine exacerbating the already uncertain macroeconomic environment.

Citing the backdrop of high inflation, central bank communication challenges, Covid and geopolitical tensions, Rabobank analysts highlighted the attractiveness of covered bonds in volatile markets.

“When uncertainty reigns (as it appears to be doing at the current juncture) safe harbours appear ever more attractive,” they said. “We would argue, broadly speaking, that the covered bond market has indeed provided such reassuring waters.”

Bausparkasse Wüstenrot’s deal was teed up yesterday, and this morning leads DZ, Erste, RBI and UniCredit opened books with initial price thoughts of the mid-swaps plus 11bp area for the €300m no-grow February 2030 mortgage Pfandbrief, expected rating triple-A. After an hour and 5 minutes, they reported books above €600m, excluding joint lead manager interest. After an hour and a half, they fixed the spread at plus 8bp on the back of books over €700m, excluding JLM interest, and the final book at re-offer was over €690m, including €30m in JLM interest.

A syndicate banker at one of the leads said the issuer was rewarded for proceeding in today’s market.

“Given the current situation, with markets a little more subdued than they were two weeks ago, plus turbulence in the stock market, plus Ukraine, plus COVID – you name it – it was a wonderful trade,” he said.

“It excludes quite a few people, given it is a sub-benchmark,” he added. “At the same time, it is a well-reputed name, albeit more for the specialist investors.”

He put fair value at plus 5bp, implying a new issue premium of 3bp. The issuer’s September 2028 outstandings were quoted at plus 3.5bp, mid, according to pre-announcement comparables circulated by the leads yesterday.

“We started with an initial concession of about 6bp, and took off 3bp, which is in line with Societe Generale yesterday,” said the lead banker, “and the book was more than two times done at re-offer.”

A syndicate banker said that while geopolitical tensions are not affecting the covered bond market directly, they are nevertheless impacting broader risk sentiment.

“If people, for whatever reason, do believe that yields are going to fall sharply or stocks are dropping dramatically, it one way or the other feeds into the markets,” he said. “So it may make people take one step aside and just let deals go without themselves getting involved.”

European markets were more stable today, but the FIG primary market remained quiet away from covered bonds and Royal Bank of Canada pulled a senior bond in Australian dollars. A key Federal Reserve meeting tomorrow (Wednesday) and blackouts are expected to keep activity subdued, and no further covered bond mandates have been announced.