FIG in rude health after QE, Greece, with supply seen higher after results

Jan 30th, 2015

The euro senior unsecured and covered bond markets proved buoyant in the wake of the ECB’s announcement of sovereign QE and Greek elections, although blackouts constrained supply and questions remain over the prospect of Nordic banks accessing the market after results.

Alex Tsipras imageThe victory of Greek anti-austerity party Syriza on Sunday and its formation of a coalition government on Monday did not overly concern markets outside Greece, with benchmark covered bonds for AIB Mortgage Bank and Bankinter on Tuesday showing demand for peripheral credits to be strong.

AIB’s Eu750m seven year issue was three times oversubscribed after the Irish bank had pulled a planned 10 year in November, while Bankinter achieved what was considered aggressive pricing on a Eu1bn 10 year. Erste Bank meanwhile overcame concerns surrounding some Austrian banks, notably RBI, to price a Eu500m 10 year issue yesterday (Thursday).

In the senior unsecured market, Rabobank and Morgan Stanley each priced Eu1.5bn long dated benchmarks, the Dutch bank selling a 12 year and the US firm a 10, both of which were heavily oversubscribed. The Netherlands’ Achmea meanwhile provided subordinated supply with a Eu750m perpetual non-call 10 issue that was some four times oversubscribed.

“We are seeing a strong bid for duration,” said Viet Le, financial institutions and covered bond syndicate manager at Crédit Agricole CIB. “One of the reasons we did not see more supply is blackout periods, but those who were in a position to move met strong demand and have been able to take out size.

“With markets in good shape and investors looking forward to further issuance, activity should pick up next week as banks progressively exit blackout.”

Nordea kicked off the reporting season in the Nordics on Wednesday, with SEB following on Thursday (see separate article for more details), and other major Danish, Finnish, Norwegian and Swedish financial institutions are releasing results next week.

Although historically tight levels could attract such issuers into the senior unsecured market and AT1 and Tier 2 markets are expected to pick up after a relatively quiet start to the year, question marks remain over whether Nordic issuers will access the euro covered bond market.

Syndicate officials have noted renewed demand for benchmark covered bonds at the beginning of the year as the expectation and then announcement of the ECB’s sovereign QE programme has led to covered bonds becoming more attractive relative to government and other SSA issuance.

“All of a sudden there is some value again in covered bonds, which is great news for those who are looking to issue,” said Alex Sönnerberg, Nordic FIG DCM origination at Crédit Agricole CIB. “Investors are also looking at sectors that are not eligible for CBPP3 and of just as high quality but offering pretty good value, as witnessed by the Aussie and Canadian supply we have seen, and the Nordics could benefit from this.”

However, running counter to this have been movements in cross-currency basis swaps, noted Sönnerberg.

“The problem, as always, is the basis swap,” he said. “When the ECB announced QE the euro-dollar basis moved a lot more negative, and that has a knock-on impact on, for example, the all-in cost for the Swedes, making euros rather unattractive versus their domestic market.

“There is around 5bp-10bp of differential, which is quite a lot, to be honest. We’ll see if that means that they stay in the domestic market for the time being.”


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