Iccrea Banca issued what could be the only euro benchmark covered bond of the week today (Tuesday), €500m of four year obbligazioni bancarie garantite priced in the middle of initial price thoughts and at the minimum size, final terms that nevertheless encouraged further demand.

After a mandate announcement yesterday (Monday), leads ABN Amro, Barclays, Citi, Commerzbank and UniCredit opened books this morning with guidance of the mid-swaps plus 75bp area for the euro benchmark-sized November 2027 OBG, expected rating Aa3. Around three hours later, they set the final terms at a size of €500m at a spread of 75bp on the back of books above €500m, excluding joint lead manager interest, and the final book is understood to have reached some €720m.

A syndicate banker away from the leads said he was surprised that the deal did not gain sufficient traction to enable tightening from “very attractive” initial price thoughts – he saw the new issue premium at 10bp-15bp, while the leads circulated pre-announcement comparables including Iccrea 0.01% September 2028s at a z-spread of 63bp and 3.875% January 2029s at 68bp, with Banco BPM 3.875% September 2026s and 3.75% June 2023s were seen at 48bp and 63bp, respectively.

“The benchmark sizing language will have made a difference and potentially have scared some investors away,” suggested the syndicate banker. “In this market there is a different price for €500m – which the smaller Italians have tended to come with – and €750m.

“It’s quite telling that the final book was €720m – it points to quite a lot of posturing from investors, keeping their cards close to their chests – as they have typically done lately, making execution challenging – only to jump on the train once the final terms are set.”

He also cited the 81bp spread of the most recent OBG benchmark, a €500m five year deal for Banca Popolare di Sondrio two weeks ago (17 October), as something investors could point at as a reason not to go for a tighter spread on Iccrea’s shorter-dated offering.

Another banker away from the leads said the outcome reaffirmed investors’ recent preference for top tier names, ideally from core jurisdictions, even if some second tier Italian names had enjoyed success against variable backdrops earlier in the year.

“It wasn’t the easiest one,” he said. “If you look at recent covered bonds that worked really nicely, they are from national champions or at least household names. Italy is still a jurisdiction where there is a split between UniCredit, Intesa and then some of the smaller banks that at times have struggled.”

Today’s new issue comes after Iccrea sold its €500m September 2029s in early July.

A pick-up in euro benchmark covered bond supply is not anticipated until at least next week, with public holidays in some parts of Europe disrupting this week’s schedule and the outcome of the latest FOMC meeting tomorrow (Wednesday) among several data points further stymieing activity.

“Right now the pipeline is fairly limited,” said a banker. “But on the other hand, it is building up for next week in covered and senior, especially after the successful senior non-preferred trades for SEB yesterday and BFCM today.

“Credit is doing well,” he added. “Covered are solid, but trickier, and whether those in the pipeline will pull the trigger is another question.”