BPER was able to enjoy a return to benchmark OBG issuance this week on the back of an improved outlook to Moody’s Baa3 Italy rating, but an undersubscribed Wüstenrot Bausparkasse green Pfandbrief debut showed the market to otherwise be less accommodating into year-end.

On Tuesday, BPER Banca leads Crédit Agricole, IMI Intesa Sanpaolo, NordLB, RBI, UBS and UniCredit opened books for the euro benchmark-sized October 2028 OBG, expected rating Aa3, with guidance of the mid-swaps plus 80bp area. After around 50 minutes, they reported books above €1bn, including €165m of joint lead manager interest, and after around an hour and three-quarters, they set the size at €750m and the spread at 75bp on the back of books above €1.5bn, with the final book good at re-offer above €1.6bn, including €180m of JLM interest. A lead banker put the new issue premium at around 6bp.

The execution was much stronger than that of the last Italian euro benchmark, a €500m four year OBG from Iccrea on 31 October, which was priced in the middle of guidance of the 75bp area on the back of a final book of some €720m.

BPER moved after Moody’s had on Thursday of last week (17 November) changed the outlook on the Italian sovereign’s Baa3 rating from negative to stable.

“The sword of Damocles was not there anymore for Italy,” said the lead banker, “and that really helped in terms of the performance of BTPs versus mid-swaps and other govvies, in turn making covered bonds out of Italy more juicy for investors such as asset managers.

“BPER’s also one of the small, but strong names out of Italy, and unlike some of their peers, they hadn’t done a trade yet this year, so a lot of investors were aware that this was going to come at some point and were keeping a little powder dry for when BPER would come.”

The new euro benchmark is BPER’s first since a €600m seven year in March 2019, which is its only other outstanding euro benchmark.

BPER’s long term Baa2 deposit and Ba1 issuer and senior unsecured ratings were affirmed by Moody’s later on Tuesday amid a slew of Italian rating actions, with the outlook on its deposit and senior ratings changed to positive.

While BPER’s result was reminiscent of the success of most OBGs in the pre-summer return of OBGs, Wüstenrot Bausparkasse’s outcome, also on Tuesday, suggested that the periodic travails of the Pfandbrief market might not have been overcome. However, market participants emphasised a split between investor receptiveness to “household” and less well followed names as key to the disappointing demand.

Leads Commerzbank, Deutsche, DZ, Helaba and UniCredit attracted just €435m of non-JLM demand to the German issuer’s €500m no-grow November 2028 inaugural green Pfandbrief, with pricing in the middle of guidance of the 32bp area, equivalent to a new issue premium of around 10bp.

“The difficulty here was that it’s not the easiest name,” said a banker away from the leads, “and the investor base is quite small – clearly you’re just talking to German accounts, and they haven’t been the most active of late in covered and the dynamic in Pfandbriefe hasn’t been that good. So I don’t think it was an issue of price; it’s just something that wasn’t very appealing to investors at this time of year.

“It’s also quite interesting,” he added, “because some issuers have been using green or labelled covered as a way to de-risk a trade a little, but we see here that it’s not the solution to everything.”

A lead banker said the outcome, although well short of desired, was “bearable”, and was encouraged by those investors who had placed orders remaining in the book even when it was clear the deal was not subscribed.

“It’s a question of the market having matured,” he added, “so people know this can happen, and those who are willing to get their head around the name and its quality are happy to have the concession left on the table, without that necessarily being dependent on how many other people are thinking the same way.

“This was probably something that kept the deal afloat.”

Expectations of further euro benchmark issuance in the coming week were low, with several syndicate bankers saying they were not aware of any concrete plans or signs of issuers eyeing the market, despite BPER and Nationwide having shown that successful issues have still been possible.

“There may be one or two who have something hidden up their sleeves,” said one, “but we have nothing and I would be greatly surprised if we were to end up with any sort of transaction next week. Our clients are done for the year and are designing issuance strategies for 2024.”

Markus Herrmann, senior investment analyst at LBBW, suggested any further activity could reflect the trend purportedly borne out this week.

“For established ‘first tier’ benchmark issuers, it may be the right decision to go to market before the end of this year so as to avoid the usual crowding in January next year,” he said. “For other potential issuers, the example of Wüstenrot may be an indication that conditions might be better in the new year. For example, lines with investors will then be free again for second or third tier issuers, too, and the allocation options under new planning will be again more flexible.”