Today’s three deals were announced yesterday (Monday), with Belfius executing a Eu1bn 10 year, BPCE SFH launching a Eu750m seven year, and HSH Nordbank its Schiffspfandbrief after taking indications of interest yesterday.

“The market’s still in very good shape,” said a syndicate official away from today’s supply. “It is good to see demand for all of them, showing the strength of the primary market.”

Leads Banca IMI, Danske, Deutsche, Natixis and Santander went out with initial price thoughts (IPTs) of the mid-swaps plus 5bp area for the BPCE SFH transaction, which was a Eu750m no-grow. After taking over Eu1.5bn of indications of interest guidance was set at the 3bp area, and the re-offer at 1bp over on the back of a Eu3.1bn order book.

A syndicate official away from the leads said that BPCE’s deal was the pick of today’s issuance. He attributed the strength of demand to the deal’s no-grow status.

“As soon as you declare the size right away, as they did here, there is no risk that the size will be overdone and investors come in,” he said.

He said that the result was a limited concession to the issuer’s curve, although he noted that gauging the exact size of the new issue premium was tricky, with the issuer’s closest outstandings carrying off-market coupons. He said that the most on-the-run issue was a long 10 year, February 2025 deal, that is bid at plus 2bp, and also cited fellow BPCE group member CFF 10 year paper bid at plus 7bp and seven year paper at minus 3bp. Another syndicate official away from the leads put the new issue premium closer to 4bp, suggesting that the pricing approach had been quite conservative, but not out of line with recent supply.

Belfius went out with IPTs of the 10bp-12bp area via leads Belfius, Citi, Crédit Agricole, Deutsche and LBBW, with a Eu1bn size in mind from the outset, according to a syndicate official at one of the leads. Guidance was then set at the 9bp area on the back of Eu1.5bn of indications of interest, and the re-offer at 7bp after books topped Eu1.75bn, with final demand totalling Eu1.8bn.

The deal is only the third 10 year euro benchmark of 2015, and comes after a successful Erste Bank Eu500m 10 year on Thursday that attracted almost Eu2bn of demand. Syndicate officials said that Belfius today underlined the buoyancy of the 10 year part of the curve.

“It was one of the areas of the market where we were not so sure if it was right to approach it,” said a banker away from the leads. “At the beginning of the year the traditional investor base showed itself to be rather hesitant with yields below 1%.

“However, Erste showed that you can get a strong result and now Belfius has confirmed this.”

The IPTs of 10bp-12bp were considered to have been on the safe side, but bankers said that the aim of taking Eu1bn out of the market partly explained this, and noted that the 4bp move from the middle of IPTs, i.e. 11bp over, to the 7bp re-offer was typical of recent supply. With Belfius having a 2024 issue outstanding bid at 4bp over, the new issue premium was put at around 3bp.

A lead syndicate official noted that a pick-up of around 15bp over Belgian government bonds has also proven attractive.

HSH Nordbank priced its Eu500m ship Pfandbrief at 33bp over mid-swaps, following IPTs of the mid-30s and guidance of 33bp-34bp over. Barclays, Deutsche, HSH, JP Morgan and Natixis are understood to have taken some Eu700m [corrected from Eu300m] of orders for what is only the second benchmark covered bond backed by shipping collateral.

A syndicate official said that the long execution period – with indications of interest having been taken yesterday – made sense given the narrow scope for the product.

“Some investors don’t value the collateral at all, and for others it is just the icing on a senior unsecured cake,” he said. “But there are few that view it as a fully-fledged covered bond

“They nonetheless got a Eu700m book,” he added. “If there was ever a time to sell an off-the-beaten-path asset class, it’s now.”

Another agreed.

“Three to six months ago you never would have expected something like this to work in benchmark format,” he said.

He said that the level of 33bp over was closer to where a potential HSH Nordbank senior unsecured issue would come, putting the spread up to 40bp wider than where a three year mortgage Pfandbrief would come.

“It is a reasonable pick-up if you consider the challenges of the collateral,” he said. “It is a good sign that there are funding opportunities with alternative collateral types – although I’m not sure if we’ll see anyone else follow.”

Vorarlberger Landes- und Hypothekenbank (Hypo Landesbank Vorarlberg) is in the pipe for tomorrow with its Eu300m 10 year mortgage Pfandbrief via DZ, LBBW and RBS. It comes after Erste’s 10 year on Thursday, while Hypo Tirol on 1 October sold a sub-benchmark, a Eu300m five year debut public sector Pfandbrief.

“It should work,” said a syndicate official away from the leads, suggesting that it might have to pay a pick-up of 3bp-5bp over the issuer’s larger peers.

Little other supply is expected this week, with blackout periods an issue for many financial institutions. Many Nordic and Spanish issuers have, however, announced results and, although the basis swap is working against non-Eurozone Nordic issuers, Nordea Bank Finland is considered a likely candidate for a new benchmark.

HSH Nordbank is expected to launch a rare ship Pfandbrief tomorrow (Tuesday) after taking indications of interest today, with leads Barclays, Deutsche, HSH, JP Morgan and Natixis, after a roadshow in Germany last week and investor calls today. Initial price thoughts were set at the mid-30s over mid-swaps area, with the issuer targeting a size of Eu500m.

A syndicate official at one of the leads said the pricing for such a niche product was based on feedback from the roadshow. He added that the deal is expected to be eligible for the ECB’s third covered bond purchase programme, although a banker away from the leads noted it would not be LCR eligible.

“That could make it challenging,” said the latter, “but I think at around 30bp it will hopefully be an OK trade.”

HSH’s Schiffspfandbriefe are rated Baa2, one notch higher than the bank’s Baa3 senior unsecured rating. The issuer in 2008 sold the first jumbo ship covered bond, a Eu1bn two year deal.

Belfius Bank announced a mandate for a 10 year covered bond to be priced on Tuesday, with Belfius, Citi, Crédit Agricole, Deutsche and LBBW as leads. A syndicate official at one of the leads said the issuer was targeting a size of around Eu1bn.

He noted that an outstanding Belfius June 2024 deal is trading at 3bp, mid.

“In the context of recent trades we would expect a new issue premium of around 3bp,” he said.

The last Belgian benchmark covered bond was a Eu1bn seven year for KBC Bank that was priced at 2bp over mid-swaps on 15 January. Belfius’s last benchmark was a Eu500m five year at 4bp through mid-swaps on 20 November.

Meanwhile, BPCE mandated Banca IMI, Deutsche, Danske, Natixis and Santander for a Eu750m long seven year deal, to be executed tomorrow.

A syndicate official at one of the leads said BPCE had an outstanding March 2022 deal trading at minus 3.5bp, mid, and a November 2023 at minus 2.5bp, putting fair value at around minus 3bp.

He added that despite some volatility, it seemed a good time for issuers to come to the market.

“The relatively modest sizes of deals are helping,” said the syndicate official, “QE has obviously pushed spreads in, and the SSA space is really tight – all making these valuations look attractive.

“Despite the Greece volatility, we’re seeing that things look OK.”

A banker away from the deals said that although the market seems relatively quiet, it is stable.

“I don’t see any reason why you wouldn’t want to do a trade,” he said. “If Syriza keep saying what they are saying in Greece then you will get volatility. But as you saw last week, the market was volatile and Bankinter and AIB still managed to get very good trades done.

“I don’t see the backdrop derailing the outcome of most transactions, as long as they are not from the most challenging of names. Certainly nothing is going to stop Belfius.”

Another syndicate official away from the mandated deals agreed that after a slightly weaker closing on Friday and then “those punches from Greece and Brussels” the market looked in good shape.

“Covered bonds are looking attractive versus government bonds,” he said. “It’s fairly open for issuers. In the absence of any major events – any headline can cause a bit of volatility – the overall topic remains the ECB’s QE programme.

“I would not see any reason for a core or semi-core issuer not to move forward now.”

In sterling, Leeds Building Society today sold a £300m (Eu400m) three year covered bond at three month Libor plus 27bp, after leads Barclays, HSBC and Santander set guidance at 27bp-28bp.

A syndicate official away from the leads said that it was difficult to estimate the new issue premium offered by the deal – the issuer’s first sterling covered bond trade since 2012.

“The most recent sterling trades to come to market were all from the likes of Lloyds and Barclays and they’re all significantly tighter than this,” he said. “It’s slightly different pricing a building society versus one of the big high street banks.”

A late book update put it at in excess of £300m, but the lead syndicate official said that in spite of the modest oversubscription the deal could be described as a success.

“They’ve got a trade printing at the tight end of guidance and what looks like a very attractive level versus where UK issuers are printing in euros, for instance,” he said. “They are taking advantage of the demand for covered bonds.”