FIG reopened at tight levels, but little autumn action seen

UBS and National Australia Bank this week successfully reopened the euro financial institutions and covered bond markets, respectively, but overall the euro primary market was slow off the mark after the summer recess.

Issuance activity was modest across markets in August compared with previous years and supply is expected to remain subdued, although FIG flow deals this week were well received.

UBS, for example, sold a Eu3bn dual tranche senior unsecured deal while National Australia Bank priced a Eu500m 2021 covered bond tap, twice the Eu250m minimum that was marketed, at 9bp over mid-swaps, 17bp tighter than where the initial issue was sold in late May.

“The NAB tap was impressive,” said Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB. “It shows the amazing compression in spreads over the summer and is further confirmation of the supportive issuance conditions, given the traction expected from the treatment of covered bonds in the LCR, net negative supply, and the impact of the TLTRO.”

Comments from European Central Bank president Mario Draghi at a symposium in Jackson Hole last Friday, which were taken as signalling the ECB may proceed with quantitative easing, triggered a further rally in yields this week.

The consensus among syndicate officials is that there is unlikely to be a rush of near term supply, with targeted longer term refinancing operations (TLTROs) on offer at the ECB seen as likely to reduce wholesale funding needs and heighten the selectivity with which issuers can approach the market. Syndicate bankers have, however, also noted that there is a case to be made for tapping the market before the ECB’s Asset Quality Review.

Hybrid capital transactions are expected to form more of a priority for issuers this quarter. Banco Santander and UniCredit this week announced AT1 mandates.