Commerzbank and Bawag successfully tested 10 years today (Wednesday), as the German issuer took out €1bn on the back of over €2.5bn in demand with its first benchmark Pfandbrief since March 2020, and the Austrian enjoyed peak orders above €2bn for a €500m no-grow transaction.

The two 10 year deals come after the covered bond market enjoyed a successful New Year reopening yesterday (Tuesday), as a €1.5bn 6.5 and 15 year Erste Bank dual-trancher and €750m Aareal eight year evinced strong demand for the asset class.

“Both went very well, moving 5bp and basically shaving off any new issue concession one could think of,” said a syndicate banker involved in today’s supply. “On the heels of yesterday’s transactions, it again indicates that this is a super-receptive market and good news for everyone who is still considering a transaction.”

Following a mandate announcement yesterday, Commerzbank leads BayernLB, Commerzbank, DZ, Santander and UniCredit went out this morning with initial guidance of the mid-swaps plus 4bp area for the 10 year euro benchmark, expected rating Aaa. After 55 minutes, they reported books over €1.5bn, excluding joint lead manager interest. After an hour and a half, the spread was set at minus 1bp on the back of demand above €1.9bn, excluding JLM interest. The size was ultimately set at €1bn on the back of books above €2.1bn, excluding JLM interest. The final book was above €2.45bn, including €105m in JLM interest.

Today’s new issue is Commerzbank’s first euro benchmark since March 2020, when it sold a €1.25bn 10 year mortgage Pfandbrief, and bankers at and away from the leads said the name and its pronounced absence from the market were factors playing into the deal’s success, alongside the stable and receptive market.

“They haven’t been to the market in almost two years now,” said a banker away from the leads, “so from that perspective, they offered a nice scarcity and investors have jumped at the opportunity to buy the name.”

A lead banker said that the deal was priced with no new issue premium. According to comparables circulated by the leads this morning, Commerzbank March 2030s were quoted at minus 2bp, mid, and its January 2034s at minus 0.6bp.

Another lead banker said the move directly from the initial 4bp to the re-offer of minus 1bp was designed to take any ambiguity off the table.

“It basically indicates that price was their first priority,” he added.

After a mandate announcement yesterday, Bawag PSK AG leads BayernLB, Deutsche, DZ, Erste and RBI opened books this morning with initial price thoughts of the mid-swaps plus 6bp area for the €500m no-grow 10 year mortgage covered bond, rated Aaa. After about 40 minutes, they reported books above €1.5bn, excluding JLM interest. After about two hours, guidance was revised to plus 2bp+/-1bp, will price in range, on the back of books above €2bn, including €95m in JLM interest. The spread was fixed at plus 1bp, and the final book good at re-offer stood at €1.5bn, including €25m in JLM interest.

“It went fantastically well,” said a lead banker. “The oversubscription rate for the transaction, and in terms of new issue concession paid, we pretty much priced Bawag through fair value.”

According to pre-announcement comparables circulated by the leads, Bawag September 2030s were trading at 1.2bp, mid, and its May 2031s at 1.8bp, and another lead banker put the new issue premium at zero.

Bawag launched three €500m euro benchmarks last year, most recently a green debut in August 2021, and the lead bankers said that in light of this and how busy the market is, the issuer could be very pleased with the outcome, and that the capped €500m size contributed to this.

A syndicate banker away from the leads said that, based on the limited size, a tighter starting point than 5bp would have made more sense, but noted that this did not impact the deal’s success.

“Now we have tested the entire curve, and everything between five and 10 as well as 15 years all works equally well,” he added, “even for relatively tight Germanic names – not that we had any doubts about today’s deals, but it was good to see.”

National Australia Bank (NAB) is set to open the sterling covered bond market for 2022, with the announcement today that it is planning a short four year (December 2025) Sonia-linked sterling benchmark FRN covered bond via HSBC, Lloyds, NAB, NatWest and RBC.

The last sterling benchmark covered bond was a £1bn four year Sonia-linked deal for Canadian Imperial Bank of Commerce (CIBC) priced at plus 28bp on 8 December. NAB’s last benchmark covered bond was a €850m seven and a half year in June 2021, and its last sterling deal was a £1bn (€1.20bn, A$1.97bn) five year Sonia-linked trade in January 2020.