Green again proved its worth in a crowded primary market today (Tuesday), as a BPCE SFH €1bn 10 year green bond excelled and UniCredit Bank Austria debut hit the mark, leaving Achmea and HSBC Canada deals in their wake. Amid a heavy pipeline, Sabadell is expected with a rare cédulas.

Today’s supply continued the run of mixed results issuers have encountered in a covered bond market that since the beginning of last week has proven less dependable than previously. But just as Nationale-Nederlanden Bank (NN Bank) found with a €500m 10 year deal last Tuesday (10 May), green bonds have managed to secure better outcomes than conventional supply.

BPCE SFH was the only one of today’s trades not pre-announced yesterday (Monday), but the French issuer hit the market first. Leads BBVA, Credit Suisse, Deutsche, Goldman Sachs, ING, Natixis and Rabobank opened books just before 8.30 CET with initial price thoughts of the mid-swaps plus 13bp area for the May 2032 green euro benchmark, expected ratings triple-A (Moody’s/Fitch). After around an hour and a half, they reported books above €1bn, and after around three and a half hours, they fixed the spread at 9bp and the size at €1bn on the back of more than €2.35bn of demand, including €80m of joint lead manager interest. Some €1.95bn of demand was good at re-offer.

The book for the French deal – the longest of today’s trades – was the largest, while its new issue premium of just a couple of basis points was the lowest.

“BPCE typically does a green covered bond once a year and there is definitely an investor preference to be part of those deals,” said a syndicate banker at one of the leads, “and 10 years is clearly working as a sweet-spot right now – it’s kind of the right balance between being able to offer a relatively decent coupon, yet also the curve is neither super-steep nor too flat for investors to feel comfortable around buying at this 10bp give or take a few basis points level.”

Following its announcement yesterday and investor calls, UniCredit Bank Austria leads ING, LBBW, Natixis, RBI and UniCredit this morning opened books with guidance of the 10bp area for the issuer’s inaugural green covered bond, a €500m no-grow May 2028 mortgage-backed issue, expected rating Aaa. After around two hours and 10 minutes, they set the spread at 6bp on the back of a book above €1.3bn, excluding JLM interest, and the same amount was good at re-offer.

“The level of 6bp is quite a good achievement for the issuer and it was a good, solid trade,” said a syndicate banker at one of the leads. “It’s an inaugural green issue, so they wanted to make sure investors are on board.”

He said fair value based on the issuer’s conventional bonds was around 4bp, but that, assuming a slight greenium, fair value for the new issue was 3bp-3.5bp.

Aside from the two green covered bonds, today’s two other issuers either found their pricing power or demand to be weaker than anticipated. A syndicate banker away from the Canadian and Dutch trades said he was a little puzzled as to why each had not been better received, suggesting the busy market had been a factor.

HSBC Bank Canada leads HSBC, BMO, CIBC, Danske, Natixis, Rabobank, RBC, Scotiabank and Santander opened books with guidance of the 13bp area for the September 2027 euro benchmark, expected ratings triple-A (Moody’s/Fitch). After around three and a half hours, they set the spread at 13bp on the back of books above €800m, including €10m of JLM interest, and a €1bn issue was ultimately priced on the back of some €1.2bmn of orders.

A lead banker said it was not obvious why the deal had not taken off, but that heavy supply from Canada and the crowded market could have contributed to the modest demand.

“I’m glad we were dealing with a very pragmatic issuer,” he added, “in terms of saying, OK, this is what we have, what do we do? Do we tighten the spread and do a smaller deal, or do we keep the spread and cross fingers that we will have the growth that should come with what you could call somewhat attractive pricing?

“Fortunately the issuer chose the latter because then at least it’s out there for other issuers to see that is the way to approach the situation. Annoying as it is for any issuer to pay the extra couple of basis points, a few months down the line you’re going to be happy that you did, because the direction of travel is only going one way.”

He put fair value in the context of 6bp-7bp.

Achmea Bank leads ABN Amro, BNP Paribas, Deutsche, DZ, Rabobank and UniCredit opened books with guidance of the 13bp area for the €500m no-grow May 2029 issue, expected rating triple-A (S&P). After around two hours, they reported books of around €650m, excluding JLM interest, and after around three hours and 10 minutes, they fixed the spread at 11bp on the back of books of some €800m, including €20m of JLM interest. The final book was €790m.

Although Achmea could tighten its spread 2bp from guidance, the re-offer level is wider than that achieved by NN Bank on its 10 year last Tuesday. A syndicate banker away from the leads suggested that while fair value was put at around 6bp based on NN Bank’s curve, fair value for Achmea could arguably be more like 8bp-9bp.

“And to get a deal done, you have to attract investors with more spread,” he added.

A €500m five year deal for RBI yesterday took year-to-date supply of new euro benchmarks above the 2021 full year total of €96.15bn, and after today’s deals, further new issuance tomorrow (Wednesday) is set to take 2022’s total above €100bn.

Banco Sabadell is set to launch only the second benchmark from Spain this year, having mandated BNP Paribas, Commerzbank, Goldman Sachs, HSBC and Santander alongside itself for a seven year. The only previous cédulas benchmark this year was a €500m seven year green debut from Caja Rural de Navarra at 15bp over mid-swaps on 9 February.

Syndicate bankers said Nordic and French issuers could also sell benchmarks later in the week, the latter potential going beyond 10 years, while sub-benchmarks from Austria’s Raiffeisenverband Salzburg and Canada’s Equitable Bank could emerge tomorrow, and an HCOB benchmark Schiffspfandbrief is also in the pipeline (see yesterday’s article for more mandate details).