A €750m deal for Caffil today (Thursday) took syndicate euro covered bond supply beyond €10bn for the week, after Nationwide and Westpac NZ yesterday launched sought-after deals, with comfortable oversubscription levels keeping new issue premiums down to just a couple of basis points.

The French trade took euro benchmark supply this week to €9.75bn from six issuers and seven tranches – more than in either of the previous two weeks – and was supplemented by two €300m trades.

“The covered bond market’s definitely been working well,” said one banker, “but I’d say it’s really got its mojo back now.”

Caisse Française de Financement Local (Caffil) leads Citi, Commerzbank, ING, LBBW and Natixis opened books with guidance of the mid-swaps plus 30bp area for its euro benchmark March 2032 public sector obligations foncières, expected ratings Aaa/AA+/AAA (Moody’s, S&P, DBRS). They priced the €750m deal at 27bp with a book of around €1bn, including some 50 accounts.

Syndicate bankers at the leads put the new issue premium at 2bp. The pricing of the nine year deal was 1bp wider than where CFF on Monday issued a €1.75bn eight-and-a-half year deal on the back of a peak book of some €2.6bn.

Nationwide Building Society hit the market yesterday (Wednesday) after a mandate announcement on Tuesday. Leads BNP Paribas, HSBC, LBBW NordLB and UBS opened books with guidance of the mid-swaps plus 28bp area for the March 2028 euro benchmark UK Regulated Covered Bonds, expected ratings AAA/AAA (S&P/Fitch). After around an hour and a quarter, they reported books above €1.3bn, including €100m of joint lead manager interest, and after around two hours and 25 minutes, they set the size at €1bn (£890m) and spread at 24bp on the back of books above €1.95bn, including €140m of JLM interest. The final book good at re-offer was above €2.1bn.

The new issue premium was seen as around 2bp, while the spread of 24bp was the same as that on a three year €1bn Lloyds Bank deal sold in late January, in the only other UK euro benchmark transaction of the year. That was seen at around 11bp yesterday.

A lead banker said the deal was helped by the one-and-a-half day process.

“We had a lot of investor feedback and IoIs, meaning that there was less price discovery, so they could start quite tightly,” he said. “It also meant the book built at pace, putting us in a position of strength to quickly set the size and spread – nice and clinical, no messing around.

“They ended up with an almost two times oversubscribed deal paying a 2bp NIP and flat to where another UK name recently did a three year, so all in all I think this is a great transaction. It’s also a good sign for UK plc.”

The deal is Nationwide’s first euro covered bond since a €500m 15 year in May 2022, and only the second UK euro covered bond since mid-September and turmoil sparked by the short-lived premiership of Liz Truss. The sector has also faced questions over the LCR eligibility of UK covered bonds and consequent impact on demand and spreads.

The success of Nationwide’s as well as Lloyds’ euro benchmarks has eased concerns, but a survey of 33 HQLA portfolio managers by Crédit Agricole CIB analysts found a still fairly mixed picture: around half of respondents view UK covered bonds as LCR eligible, but one-third see treatment as unclear, with the other 20% having no position on the matter. And marginally fewer than half said they are open to looking at UK covered bonds, although for some, this was not due to the regulatory treatment, while others who are concerned about the regulatory treatment were happy to buy for their non-HQLA portfolios, with these stances depending more on other risks and relative value.

“On the positive side,” said the CACIB analysts, “the regulatory uncertainty has clearly not cut UK covered bond issuers off from all of the European HQLA money and with excess liquidity in the Eurozone banking sector still exceptionally high and spreads wide, a handful of large HQLA buyers can go a long way these days as orders have typically become much larger than they were last year.

“At the same time, though, the regulatory topic still does play a role and until we get a covered bond third country equivalence regime in a few years’ time, this is very unlikely to change.”

Leads Citi, HSBC, UBS and Westpac opened books with guidance of the mid-swaps plus 50bp area for Westpac Securities NZ’s April 2028 euro benchmark, expected ratings Aaa/AAA (Moody’s/Fitch). After around three-quarters of an hour, they reported books above €1.5bn, and after around two-and-a-half hours, they set the spread at 44bp and deal size at €750m (NZ$1.3bn) on the back of books above €1.95bn, pre-reconciliation and including €15m of JLM interest, with the final order book reaching more than €2.25bn.

Bankers away from the leads cited the eye-catching 50bp starting level as having contributed to the momentum behind the trade, helping the issuer ultimately achieve a new issue premium of just 1bp-2bp following a higher than usual move of 6bp.

The euro benchmark is the first from New Zealand since Westpac’s last, a €750m three-and-a-half year deal in July 2022, while its Australian parent’s last was a €750m five year in November.

Sub-benchmark supply this week comprised two €300m issues. Iceland’s Landsbankinn today issued a debut, five year covered bond, rated A by S&P, at 90bp over mid-swaps via Barclays, Natixis and UBS, while the Mortgage Society of Finland (Hypo) yesterday sold a five-and-a-half year, rated AAA by S&P, at 32bp via Danske, DekaBank, Natixis and Nordea.