Aareal took the market into negative double-digits today (Wednesday) with a three year Pfandbrief at 10bp through mid-swaps, while BNS gave the CBPP3 market its first non-euro-zone test, and Credit Suisse joined the pipeline after CFF and UniCredit Bank Austria deals yesterday.

Credit Suisse has mandated Banca IMI, Credit Suisse, Danske, Deutsche, RBI, SEB and SG for a seven year euro benchmark covered bond, set for launch in the near future.

Abbey, which held a roadshow earlier this week with mandated banks, is understood to have held off issuing after the death of Santander chairman Emilio Botín last night.

Aareal leads Commerzbank, LBBW, NordLB, SG and UniCredit went out with initial price thoughts of mid-swaps minus the high single-digits this morning for the German bank’s Eu500m no-grow mortgage Pfandbrief, then set guidance at the minus 9bp area (plus or minus 1bp) with indications of interest of over Eu600m. The re-offer spread was ultimately set at minus 10bp with the order books totalling close to Eu800m and books set to close at 1400 CET.

Bank of Nova Scotia launched a new seven year deal this morning, offering the first euro benchmark supply from outside the euro-zone since the announcement of a third ECB covered bond purchase programme (CBPP3).

BNS, Deutsche, HSBC and JP Morgan opened books on the Canadian deal with initial price thoughts of the mid-swaps plus 6bp area, then revised this to guidance of 5bp before setting the re-offer at 4bp over mid-swaps and size at Eu1.5bn on the back of a Eu2bn book.

A banker away from the leads said that the deal was not such a blow-out as the past couple of days’ deals for the likes of CFF and Caffil, although it appeared to be going OK. He said that the re-offer was at roughly flat to where he saw fair value.

“So it was not generous,” he added. “There is perhaps a bit of a different story for issuers from outside the euro-zone.”

However, another syndicate official away from the leads said that BNS had achieved a good result, noting that its 4bp level for seven years was great compared with a re-offer or 7bp for TD’s five year in July, with BNS being lower rated.

“I’d say that’s confirmation that it’s an easy for an issuer that is as far away from the euro-zone as you can get to ride this wave,” he added.

A syndicate official at one of the leads said that there is a distinction between euro-zone and non-euro-zone issuance, although it is more a question of demand for likely CBPP3-eligible covered bonds having been boosted than any change in the good prevailing demand for Canadian as well as Australian names.

“They have moved in the same direction,” he said, “they are just lagging a bit.”

He said that the difference was also likely to be evident in the secondary market, with names like BNS not tightening in the same dramatic way as Caffil, for example, has.

He said that, at 4bp, BNS’s deal offered perhaps 1bp of new issue premium, with fair value at 2.5bp-4bp over. He cited the issuer’s April 2019s at minus 2bp, mid, TD July 2019s at minus 3bp, and Scandi and UK names in a similar context. He picked out a Lloyds seven year at 3bp over as a very good comparable.

“There was potentially a smaller deal on the table at 3bp,” he added, “but we felt that Eu1.5bn at 4bp met the objectives of the issuer a bit better.”

UniCredit Bank Austria priced its Eu500m no-grow long five year mortgage Pfandbrief at 7bp over mid-swaps yesterday, following initial price thoughts of 10bp-12bp and guidance of the 8bp area (plus or minus 1bp). Pricing was revised from IPTs to guidance after more than Eu1.9bn of orders were placed in around 40 minutes, according to one of the leads.

Leads ABN Amro, HSBC, Natixis, NordLB and UniCredit then built a total order book of Eu2.6bn comprising 117 accounts, with the significant oversubscription and low price sensitivity allowing for pricing at the tight end of the guidance, according to the lead, who described the book as high quality.

According to the lead manager, the deal is the tightest ever on an Austrian covered bond.

“This very successful transaction impressively highlights the strong reputation of UniCredit Bank Austria AG in the capital markets,” it added.

The deal was UniCredit Bank Austria’s fourth covered bond benchmark of the year and third mortgage covered bond, with the Austrian bank having issued a long five year, an October 2019 at 23bp over mid-swaps in April.

A banker at one of the leads said that the 2019 issue had tightened along with the market ahead of the announcement of the new issue, and tightened further yesterday morning as the new issue was being launched, from 7bp to about 5bp over. He said that adjusting for the difference in maturity, fair value for the new issue was therefore 6bp-7bp over, meaning that the issuer had paid a “very limited” new issue premium.

German accounts were allocated 55%, Austria 7%, the Benelux 7%, the UK/Ireland 7%, Italy 6%, the Nordics 4%, the Middle East and Asia 4%, Switzerland 3%, and France 2%. Banks took 62%, fund 28%, insurance companies 6%, and central banks 4%.

Compagnie de Financement Foncier (CFF) took French covered bonds tighter after a Eu1.25bn five year for Caffil at minus 1bp on Monday when it issued a Eu1bn no-grow five year at 5bp through mid-swaps yesterday. Leads Commerzbank, Danske, LBBW, Mediobanca and Natixis built a book of more than Eu4.8bn comprising 152 orders – in line with the magnitude of Caffil’s book on Monday.

The leads had gone out with IPTs of 1bp over mid-swaps, but after “massive interest” in the hour following the deal’s announcement guidance was set at the minus 2bp area, with the eventual order book justifying the minus 5bp pricing, according to a lead.

“The investors’ response to this issuance highlights the strong reputation of CFF’s signature,” said the lead.

A syndicate official at another of the leads said that the number of orders, at 152, was among the highest he had ever seen. He also highlighted distribution of 46% to central banks and official institutions. He noted that demand from other investors was no weaker than normal, but that the issuer had prioritised central banks.

He said that banks in general tended to inflate their orders more than other accounts and welcomed further strong participation from asset managers. He suggested that, having found core covered bonds too tight before the CBPP3 announcement, real money accounts were keen to get involved in core covered bonds again on a relative value basis – in CFF’s case versus French governments, with a pick-up of 14bp on offer.

“It’s good to see demand coming from all angles,” he said.

Another syndicate banker also highlighted the nature of demand in the primary market in general.

“There is very good real money take-up of these deals,” he said. “If anything unexpectedly positive comes out on 2 October [when the ECB will give further details of CBPP3] then it all go much tighter.

“We are actually only a few basis points tighter than where deals would have come a week or two ago. So I wouldn’t say it’s crazy; it’s logical.”

He noted that spreads are around the levels seen before the crisis, but highlighted that the yield environment is completely different now – and set to stay that way.

“Many of the investors we saw on Caffil were participating because with a yield of 0.49% it was offering more than double the yield of the Obl 170 for a public sector covered bond,” he said.

However, he said that there is likely to be a cap on spreads, with investors looking at where core covered bonds trade versus agencies for example. He said that there was some switching out of French covered bonds into a new Eu5bn Cades 10 year issue yesterday, for example.

“But I think things can grind a bit tighter, particularly at the short end,” he added.

He suggested that most core names outside Germany could look at a range of perhaps minus 8bp to minus 2bp in the near term – still substantially tighter than the mid-swaps flat to plus 5bp of a week ago.