Just €4.25bn of euro benchmark covered bonds hit the market in the first week of 2025, down dramatically on previous new years and even quieter than expected, but the four issuers who did test the water found strong demand for their new issues.

Crédit Agricole Italia and Landesbank Baden-Württemberg (LBBW) reopened the primary market with the first euro benchmarks since November on Wednesday, followed by deals from NordLB yesterday (Thursday) and Caffil today – the French issuer having concluded 2024 supply on 25 November.

The first full week of January is usually the busiest week of the year, but – on top of Monday being a public holiday in many parts of Europe – factors that had been cited as dampeners going into year-end indeed combined to subdue issuance.

“There was a consensus – perhaps to a damaging extent – that covereds were going to be sidelined at the start, given that seniors are so attractive and covereds don’t appear to have found their home yet amid the SSA widening,” said a syndicate banker. “So covered bonds were caught between a rock and a hard place, and didn’t know where to go.

“This translated into an extremely slim turnout.”

The €4.25bn total this week compares with €13.25bn of euro benchmark issuance in the 1-5 January week of 2024, with €3.75bn of that having been sold on 2 January alone. Covered bond supply this week was also overshadowed by unsecured bank issuance.

Those issuers who did opt for covered bonds this week found ample demand, after the first two both adopted pricing strategies that took into account the prevailing dynamics and recent lack of supply.

Credit Agricole Italia (pictured) achieved the biggest book of the week when it attracted a peak €7bn-plus of orders to a €1bn nine year OBG. Leads BBVA, Crédit Agricole, LBBW, Mediobanca, Natixis, RBI and UniCredit tightened pricing from IPTs of 100bp-105bp over mid-swaps to guidance of 90bp+/-2bp, ultimately pricing the February 2034 benchmark at 88bp on the back of a final €6.4bn-plus book.

“It was a proposition that was very difficult to miss,” said a syndicate banker at one of the leads, “especially for those credit portfolio managers that are happy to look at both covered and seniors and play the relative value between asset classes and geographies – Crédit Agricole Italia came with triple-digit IPTs when on the same day you had a trade like DNB starting at the 95bp area for a senior preferred.”

The Norwegian trade was a €750m six year non-call five green bond tightened to 70bp.

With there having been little long-dated euro benchmark issuance for some time, let alone long-dated OBG issuance, Crédit Agricole Italia’s leads did not declare a new issue premium, but a banker suggested it offered a pick-up in the high single-digits over outstandings. The pricing was 16bp inside BTPs.

A €1bn five year mortgage Pfandbrief from LBBW on the same day was a more typical new year reopener and enjoyed a strong reception, attracting some €5.7bn of demand. Leads DZ, Erste, LBBW, Rabobank and TD went straight out with will-price-in-range guidance of 40bp-42bp and achieved the tighter end, although the new issue premium was put at around 7bp.

“They played it super-safe by limiting themselves to a 2bp move in choosing this pricing approach, because their overriding ambition was to get the €1bn securely under their belt,” said a syndicate banker. “As they have plenty to do, I don’t blame them for that and it was the right tactics, but I think with hindsight it wasn’t necessary.”

Yesterday, NordLB followed up with a €1bn 3.75 year green mortgage Pfandbrief that attracted some €5bn or demand. Leads DZ, Helaba, Natixis, NordLB, RBC and Santander adopted a more common approach to pricing and tightened from the mid-swaps plus 38bp area to 33bp, equivalent to a new issue premium of around 3bp.

Caffil then launched the biggest euro covered bond of the week today (Friday), a €1.25bn 8.5 year via Barclays, Crédit Agricole, JP Morgan, LBBW and Natixis. The new issue attracted some €5.25bn of demand, allowing pricing to be tightened from the mid-swaps plus 78bp area to 69bp.

“It’s a super-strong trade,” said a syndicate banker at one of the leads. “The main milestone here for Caffil is that they are pricing inside OATs – we started with IPTs just marginally back of OATs on an interpolated basis, and priced it inside.”

He added that the pricing reflected zero new issue premium.

A syndicate banker remarked that the strength of demand for Caffil’s and NordLB’s trades was at the high end of their previous achievements.

“Books seem surprisingly big at the moment,” he said. “Where is this demand coming from? Maybe it is partly due to the fact that supply is so scarce, so those investors who want to buy covered bonds believe that there won’t be much around the corner so they should get what they can – if they had had heard that there was €15bn per week to come, they probably wouldn’t have rushed in so aggressively.

“Bearing in mind that an avalanche is still not expected, this is good news for issuers, because it seems to provide for fertile ground when it comes to grinding spreads tighter. Let’s see what happens, because we are aware of some issuers looking at hitting what appears to be such a receptive market.”