UniCredit successfully reopened Italy’s covered bond market today (Tuesday), selling a €3bn two-tranche issue and setting a reference for an expected wave of OBG supply – with Crédit Agricole Italia next in line – as Italian banks play catch-up after slow EU directive transposition.

Today’s issuance of obbligazioni bancarie garantite (OBGs) is the first since June 2022 and first Italian benchmark to qualify as European Covered Bond (Premium). It comes after the Bank of Italy in late March finalised implementation of the EU covered bond directive. Banks had to then comply with the new framework, updating programmes, and give the central bank 30 days’ notice of their intention to issue.

The new covered bond is also UniCredit’s first OBG benchmark since 2016. After publication of its prospectus last month, it teed up the market reopener with a mandate announcement yesterday (Monday), confirming expectations that the Italian market would be reopened by a national champion.

This morning, leads BBVA, Commerzbank, Crédit Agricole, Erste, IMI-Intesa Sanpaolo, Natixis, Santander and UniCredit opened books for benchmark-sized January 2027 and July 2030 soft bullet issues, expected ratings Aa3, with initial guidance of the mid-swaps plus 35bp area and 65bp area, respectively. The long three and long seven year tranches were ultimately priced at 27bp and 57bp on the back of books of around €2.7bn and €2.1bn, for an aggregate €4.8bn book including around 200 accounts.

Syndicate bankers noted that the large pricing moves from start to finish reflected both the necessity of price discovery and strong level of demand, but also a desire to ensure a successful reopening of the market.

“They moved 8bp from start to finish,” said a banker away from the leads, “which reflects firstly, the demand, and secondly, that they played it safe with a rather generous pricing strategy. Of course, it’s the opening of the new Italian segment, so you’d rather make sure that it’s successful – if it had flopped, no one would have given them any plaudits for being first.

“But tightening 8bp and still being able to get €3bn in this market is no small feat.”

A lead banker said that, absent any recent, liquid Italian benchmarks to use as comparables, Santander cédulas were widely used as a starting point for pricing considerations. He suggested a new long three year Santander benchmark in the same maturity would be priced in the low 20s, and that a similar level for UniCredit would be not unreasonable, particularly with demand for the shorter piece expected to be stronger and hence less price sensitive.

“We were confident anything in the mid-20s would go well,” he said. “We could perhaps have started a little tighter – but that’s easy to say with the benefit of hindsight.

“It should perform in the secondary market given the strong demand,” he added.

Santander’s curve implied 30bp between the shorter and longer maturities, according to the lead banker, and the leads stuck with this differential for both starting and landing levels. The re-offer spreads put the long three year at around 1.5bp over the Italian sovereign and the long seven year at around 28bp through BTPs.

A banker away from the leads said the pricing also roughly made sense versus what Italian references are available, noting that old UniCredit October 2026s were seen at around 25bp, while Crédit Agricole Italia January 2026s were quoted around 32bp over and September 2031s at 46bp.

According to an issuer presentation for its comeback issue, UniCredit has included covered bond and securitisation issuance out of Italy of €3bn for its 2023 funding plan, implying that it has completed OBG issuance for the year – barring any pre-funding for 2024.

Crédit Agricole Italia is expected to launch a rapid follow-up tomorrow (Wednesday), following the announcement today of plans for a long six year (January 2030) issue via ABN Amro, Crédit Agricole, IMI Intesa Sanpaolo, RBI and UniCredit.

Please see our recent Southern European Covered Bond Roundtable for further context.