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Spread rise clear as CA sells 11s, but RBC sets euro high

A €1.25bn 11 year deal for Crédit Agricole today (Tuesday) highlighted the diminished pricing power of issuers, although shorter in on the curve RBC could sell the biggest euro in 21 months, a €2bn 5.25 year, and Aktia successfully returned, ahead of five to seven year issuance from BMO and MüHyp.

After a mandate announcement yesterday (Monday), Crédit Agricole Home Loan SFH leads Crédit Agricole, Danske, Deutsche, Erste, ING, Santander and SG went out this morning with initial guidance of the mid-swaps plus 8bp area for the February 2033 obligations de financement de l’habitat, expected ratings triple-A. After an hour and 35 minutes, they reported books above €1bn, including €50m in JLM interest. After two hours, they reported books over €1.5bn, excluding JLM interest. After two hours and 35 minutes, the spread was set at plus 5bp, on the back of an order book in excess of €1.6bn, excluding JLM interest. The size was ultimately set at €1.25bn on the back of demand over €1.5bn, excluding JLM interest.

A syndicate banker away from the leads said the transaction showed how the market is tougher in longer maturities. Another saw it as having gone smoothly, but suggested the French issuer had gone out with more generous IPTs after ABN Amro yesterday priced a €1bn 15 year on the back of books above €1.15bn while paying a new issue premium of as much as 5bp after tightening 2bp from initial guidance.

A syndicate banker at one of the leads said they indeed bore in mind the Dutch trade.

“Long story short, we had a good deal at a wider spread,” he said. “It was not a surprise for us after ABN Amro achieved a fairly timid response yesterday. Pricing power has clearly shifted from issuers in favour of investors.

“It was a very good deal in terms of the quality and granularity of the book,” he added.

The lead banker noted that ABN Amro’s 15 year deal came 2bp wider than a five year longer Caffil 20 year on Tuesday of last week (11 January).

“So clearly there has been a change in the pricing paradigm,” he said.

Crédit Agricole’s 11 year also came 3bp wider than where compatriot BPCE priced a €1bn 10 year last Wednesday, and the lead banker put the new issue premium at 2bp-3bp, with bankers away from the leads concurring. One noted that the new issue came 5bp wider than where Caffil priced a 10 year tranche of last Tuesday’s transaction.

“A spread differential of 5bp in the two names with just one year’s difference is clearly not right,” he said, “and the market’s reaction has been a little bit of widening in Caffil. What I’m hearing on the trading side is that while in the beginning of January the new deals were pricing flat to secondaries, now the secondary curves are adjusting a little bit towards the new issue prints, so we have seen some widening on the back of that – nothing tremendous.

“I did expect that since the beginning of the year – it didn’t happen in the first two weeks, but now it is sort of kicking in. It’s nothing to do with today’s issuers – it looks like the market is a little full up and investors may be full, having done the first part of their January investments – and whatever comes now, tomorrow and thereafter may face a similar situation.”

Another Crédit Agricole lead banker noted that while the issuer may have paid up a couple of basis points, it had anticipated that spreads overall in the credit markets would be wider towards the end of January, and hence opted to start with higher beta issuance – including an Additional Tier 1 – where the cost of issuing has risen even more since the start of the year than in covered bonds.

He said the 11 year maturity was chosen since the French group has a concentration of maturities in 2032, meaning a maturity longer or shorter than 10 years would be necessary, and that while a long-dated issue might not be straightforward today, it could be trickier later in the year. He said only a handful of accounts who would have participated in a 10 year did not participate because of the 11 year maturity, and that a 10 year would have been priced 1bp tighter, if that.

Royal Bank of Canada (RBC) leads Danske, Deutsche, ING, Rabobank, RBC and SG announced its new issue this morning and opened books with initial guidance of the mid-swaps plus 10bp area for the April 2027 euro benchmark covered bond, expected ratings triple-A. After an hour, they reported books above €1bn, excluding joint lead manager interest. After an hour and 40 minutes, the spread was fixed at plus 6bp on the back of books over €2.85bn, excluding JLM interest. The size was ultimately set at €2bn (C$2.86bn) on the back of final books over €3.35bn at re-offer, excluding JLM interest, pre-reconciliation.

The deal is RBC’s equal-largest covered bond in euros and the biggest single-tranche euro benchmark since April 2020, and syndicate bankers away from the leads were impressed by the trade.

“It was definitely an excellent one,” said one. “The massive size has been a bit of a scarcity.”

Syndicate bankers put the new issue premium at close to 2bp, saying this was necessary to both reflect prevailing market conditions and achieve the large size, with one suggesting a big transaction was implied by the starting 10bp level.

“Doing a €2bn deal out of a three and a bit book totally makes sense,” he added.

Bank of Montreal (BMO) is planning to follow its compatriot into the market with a five to seven year euro benchmark covered bond, after a mandate announcement today. BMO, BNP Paribas, Commerzbank, Crédit Agricole, Santander and UBS have the mandate.

After a mandate announcement yesterday, Aktia Bank leads ABN Amro, Danske, LBBW, Nordea and Swedbank opened books this morning with initial guidance of the mid-swaps plus 4bp area for the €500m no-grow October 2028 Finnish covered bond, expected rating Aaa. After one hour and 15 minutes, they reported books above €1bn, excluding JLM interest. After an hour and 55 minutes, they revised guidance to mid-swaps flat +/-1bp, will price in range, on the back of books in excess of €1.25bn, excluding JLM interest. The spread was ultimately set at minus 1bp on the back of order books at €1.5bn, including €125m in JLM interest, pre-reconciliation.

“This was a no-brainer,” said a syndicate banker away from the leads, “but decently handled.”

The Finnish issuer last issued a euro benchmark covered bond almost three years ago, in February 2019, a €500m no-grow seven year, and syndicate bankers said the rarity of the paper played into the success of the new issue alongside the choice of the short seven year maturity.

“Aktia is a super-rare name from a super-strong but small jurisdiction,” said a banker away from the leads, “so it has all the ingredients for pricing as tight as possible.”

“Obviously, their intention was to have a successful transaction over the line, but I think they could have started a little bit tighter than they did,” he added. “They moved 5bp, which makes total sense to me, but still have 2bp-3bp left on the table.”

According to pre-announcement comparables circulated by the leads yesterday, Aktia March 2026s were quoted at minus 6.5bp, mid, Danske Bank January 2028s at minus 3.5bp, OP Bank April 2028s at minus 6.5bp and February 2029s at minus 5bp.

A lead banker said that the new issue enjoyed a swift response from investors and the final pricing was achieved on the back of minimal sensitivity.

Münchener Hypothekenbank (MünchenerHyp, MüHyp) is set to launch its shortest dated euro benchmark since September 2019 tomorrow, having mandated Barclays, DekaBank, DZ, LBBW, Santander and UniCredit for a €750m no-grow seven year mortgage Pfandbrief, announced today.

In the past two years the German issuer has focused on the very long end, selling 15, short 19 and two 20 year €500m benchmarks, although it also launched a £350m (€419m) long three year deal in July 2021.

“They made the most of it,” said a syndicate banker at one of MüHyp’s leads, “and given how markets are feeling at the moment, it’s a good choice to do something different to the trodden path.”

MüHyp October 2026s were quoted at mid-swaps minus 4.8bp, mid, and its November 2027s at minus 5bp, according to pre-announcement comparables circulated by the leads, while Landesbank Baden-Württemberg (LBBW) yesterday sold a €750m no-grow July 2029 mortgage Pfandbrief at minus 5bp.

“LBBW worked very aggressively,” said the banker, “although they lost some 40% of the book on squeezing the last basis point. We’ll see what is left on the table.”