Erste got euro benchmark covered bond issuance off to an early and successful start today (Monday) with a €1bn six year trade, although an Arkéa €500m eight year was more modest in its outcome. A Berlin Hyp social and green combo including a 10 year tranche headlines the pipeline.

Today’s two euro benchmark covered bonds are the first such supply since Credit Suisse rounded off €198.6bn of 2022 new issuance with a €750m three year trade on 1 December, and kick off an anticipated volume of some €173bn for 2023.

Austria’s Erste Group Bank hit screens first, leads BayernLB, Commerzbank, Crédit Agricole, Danske, Erste and UniCredit going out with guidance of the mid-swaps plus 23bp area for a euro benchmark January 2023 mortgage Pfandbrief, expected rating Aaa. After an hour and 50 minutes, they reported books above €1bn, excluding joint lead manager interest, and after two hours and 55 minutes, they set the size at €1bn on the back of orders above €1.3bn, and revised guidance to plus 21bp+/-1bp, will price in range. The deal was ultimately priced at plus 20bp with a final book of €1.4bn, excluding JLM interest.

A syndicate banker away from the leads said the outcome was very encouraging, citing the size of the order book and the tightening of 3bp.

“It shows that solid names with loyal investor bases can still perform well,” he said, “even if they had pay a new issue concession of 6bp-7bp to attract investors, of course.”

Erste also issued on the opening day of euro benchmark business last year, selling a €1.5bn dual-tranche covered bond, and the banker noted that on that occasion a €750m six-and-a-half year tranche was priced with a negative new issue premium, of minus 1bp.

“This shows how much the word has changed,” he added.

A lead banker said that Erste decided to move into the market quickly in light of anticipated heavy supply.

“You can hear the rumblings of the water pipes,” he said. “Many deals were mandated before Christmas and then prepared last week. The question was then whether or not to go on the first day.

“Erste is a national champion and didn’t need the UK [which has a public holiday today], and we felt it made sense to front-run the whole supply.”

Apart from today’s two euro benchmark covered bonds, the only other supply in the euro market was a €750m 10 year for Land Niedersachsen, with credit supply, including unsecured FIG issuance, not anticipated until tomorrow (Tuesday) when UK accounts will be in place.

“The first hour of bookbuilding was solid, obviously not quick, but then everybody looked at the market and did their calculations and things picked up,” said the lead banker. “It was driven by bank ALMs, but there were a good few other types of investors involved, with close to 80 participating.”

Erste’s new issue premium was seen as around 7bp, based on fair value seen at 13bp by the leads and others. Erste July 2028s were at 12.5bp, mid, according to pre-announcement comparables circulated by the leads, and its September 2029s at 13.5bp.

“We went out with guidance showing a NIP of 10bp to then see how it goes,” said the lead banker, “and tightening 3bp was fine for a €1bn target size.”

Arkéa Public Sector SCF leads Crédit Agricole, Crédit Mutuel Arkéa, LBBW, Santander and UniCredit went out with initial guidance of the mid-swaps plus 30bp area for its €500m no-grow January 2031 obligations foncières, expected rated Aaa. After around two-and-a-half hours, the leads reported books above €500m, excluding JLM interest, and the deal was priced at plus 29bp on the back of a final book above €700m, excluding JLM interest.

A syndicate banker away from the leads noted that the outcome was weaker than that achieved by Erste, with a higher new issue premium and modest oversubscription, although he said Arkéa’s offering was not an obvious candidate for a strong year-opening trade.

According to a lead banker, feedback around the name, product and pricing was not negative, so the outcome, particularly the tightening of just 1bp, showed the limited appetite for the longer maturity, which he said was the preference of the issuer and a reasonable proposition given the €500m no-grow size. He put the new issue premium at around 10bp, with Crédit Mutuel Arkéa March 2028s seen around 13bp and January 2030s around 15.5bp, and Caffil 2031 paper at 18.5bp-20bp.

“A done deal is a good deal,” added the lead banker. “And we will see in a couple of days or weeks how good a deal it is for Arkéa.”

And another banker away from the leads said that other second tier or non-core names might even draw comfort from the French issuer’s execution.

Officially announced among the expected supply are new euro benchmarks for Berlin Hyp and Raiffeisenlandesbank Niederösterreich-Wien (RLB NÖ-Wien).

Berlin Hyp is planning to break new ground with a dual-tranche deal combining for the first time social and green covered bonds, a €500m long three year and €500m 10 year, respectively. The new issue is also notable for being a test of the 10 year maturity, which has not been tapped since September, when Nordea Mortgage Bank and Deutsche Bank issued €1bn and €500m deals, respectively.

Barclays, Crédit Agricole, Erste, LBBW, Natixis and UniCredit are bookrunners and DekaBank joint lead (no books).

“Let’s see what we can take away from this trade,” said a banker away from the deal.

A banker at one of Berlin Hyp’s leads said that rather than Arkéa’s eight year trade today, Land Niedersachsen’s €750m 10 year could provide a better guide to how Berlin Hyp might fare.

“Berlin Hyp is a completely different animal to Arkéa,” he noted. “It is super-prime, being a German Pfandbrief, green and also €500m no-grow.”

While the federal state achieved a peak book of €1.8bn today, this dropped to above €900m once pricing was tightened from the mid-swaps flat area to minus 2bp for a €750m size.

“It had looked like being the best trade of the day, putting together SSAs and covered,” said the banker, “but with the book reduction it was not so good.

“I would see Berlin Hyp at a pick-up of maybe 12bp-13bp versus Niedersachsen, but we will see tomorrow. I’m very bullish that it will work well.”

RLB NÖ-Wien is meanwhile due with a seven year euro benchmark mortgage covered bond via Barclays, BayernLB, Danske, Erste, RBI, SG and UniCredit.