NIBC launched the first euro benchmark in a week today (Wednesday), a €500m no-grow five year inaugural soft bullet, which a lead banker said achieved a respectable new issue premium and oversubscription level given the challenges facing the covered bond market.

The euro benchmark market had been bereft of supply since Tuesday of last week, when Bank of Queensland, Bawag PSK and RBC got away deals, before last Wednesday (1 June) Danish Ship Finance postponed a €500m no-grow five year, signalling a deterioration in already challenging market conditions.

NIBC announced plans for its first soft bullet benchmark yesterday (Tuesday), after public holidays in the UK on Thursday and Friday, and in continental Europe on Monday. The Dutch bank followed up on plans to switch from the conditional pass-through (CPT) issuance it pioneered to soft bullet benchmark issuance with the registration of a new €10bn programme on Monday of last week.

Leads ABN Amro, DZ, LBBW, TD and UniCredit opened books this morning with guidance of the mid-swaps plus 14bp area for the €500m no-grow June 2027 transaction, expected rating AAA (S&P). After around an hour and a quarter, they reported books above €500m, excluding joint lead manager interest, and after around two hours and 50 minutes, they revised guidance to 12bp+/-1bp, will price in range, on the back of books above €750m. After around three and a half hours, they then set the spread at 11bp on the back of more than €900m of demand, pre-reconciliation and excluding JLM interest, with the final book above €870m, including €45m of JLM interest.

A lead banker noted the issuer had succeeded in keeping the new issue premium down to around 3bp, the lower end of those achieved in recent benchmarks, and he partly attributed the ability to achieve this to the extra demand that came in once guidance was revised, allowing for the tightening to 11bp.

“If you miss those few accounts,” he added, “you might get stuck and not be able to move, like some trades did. But this was a good, solid trade given the market backdrop.”

Unlike NIBC’s previous euro benchmark CPT issuance, the new soft bullet covered bond is CBPP3-eligible.

Although NIBC was able to limit its new issue premium today, the market’s weakening was reflected by the Dutch bank paying for its five year the same spread that compatriot Achmea offered on a €500m seven year three weeks ago.

Beyond the volatility and caution afflicting the wider markets, the lead banker attributed the covered bond market’s condition to liquidity issues on the investor side.

“Summer is fast-approaching and after €110bn-odd of supply, lines are full,” he said, “so not that many investors have cash left. And if they want to switch out from old bonds into the new issues, they struggle to find a good bid out there.

“The screens may be showing tight spreads, but in reality, they are perhaps 5bp wider if you try to sell €5m, €10m or €15m.”

However, supply could pick up after banks this week focused more on senior unsecured, with benchmark covered bond mandates said to be in the pipeline awaiting announcement.

A sub-benchmark, debut covered bond for Finland’s POP Mortgage Bank could be launched next week after the mandate was announced on Friday and following marketing this week. LBBW, Nordea and SEB are leads on the planned five year covered bond. POP Mortgage Bank is the covered bond issuer of the cooperative POP Bank Group.