Nordea Finland in ‘bonkers’ start to CBPP3 primary buys

Oct 31st, 2014

A Eu1bn 10 year Nordea Finland deal on Wednesday that was the first new benchmark eligible for CBPP3 since the programme began met with a “bonkers” response, achieving pricing 5bp inside initial price thoughts and kickstarting the primary market for Eurozone issuers.

Nordea Bank Finland300The European Central Bank’s third covered bond purchase programme (CBPP3) started at the beginning of last week (20 October), but although the ECB on Monday confirmed Eu1.704bn of purchases in the first three days of CBPP3, these were not of new benchmarks given that the only such supply there had been was from non-Eurozone issuers that are ineligible.

Nordea Bank Finland achieved a total order book of some Eu3.7bn on its deal and pricing of 1bp over mid-swaps. This was well inside IPTs of the 6bp area, at which some Eu2.5bn of indications of interest are said to have been taken, and inside guidance of the 3bp area. Syndicate bankers away from the leads were impressed by the order book and pricing, with many having initially expected an outcome of around 4bp over.

“It’s obviously a bonkers result in terms of book size,” added one.

Market participants have been keenly awaiting the outcome of new issues to gain an insight into the strategy central banks are adopting for CBPP3, but lead managers have not been directly disclosing any figures on their participation.

According to a syndicate official at one of the leads — Barclays, LBBW, Natixis and Nordea — allocations to central banks and official institutions were 22%, although he noted that this included non-CBPP3 buying, with Asian central banks, for example, also in the book. He said allocations to central banks were slightly larger than their share of orders in the book.

“There was no ambition to print at 1bp,” said the lead banker. “We were discussing something in the area of 4bp, with the obvious hope to price it on the tight side, at 3bp. The 6bp area was therefore a level where we could gain sufficient momentum and then be able to tighten 2bp-3bp.

“But during the process we had to constantly adjust this. As the book was growing and growing and growing, and because the issuer had decided to keep the size at Eu1bn, we had the chance to tighten in much more than expected.”

He said that the involvement of CBPP3 in size and at re-offer gave and will give the issuer the power to drive pricing tighter if it chooses to do so.

“In this case the issuer was very careful to say right from the start that it wanted a success leaving aside the Eurosystem, and that the price should be determined on the basis of demand from other investors.

“But I cannot guarantee that it will not be a driving force. It is up to the leads and the issuer to see what is possible with and without the ECB and they could be aggressive.”

Nordea Bank Finland was considered an ideal candidate to kick off CBPP3 primary market activity.

“Nordea’s fantastic outcome is clear evidence that secondary market price are poor guides for syndicate and that the primary market is driving the secondary market, not the other way round,” said Vincent Hoarau, head of FIG syndicate at Crédit Agricole CIB. “This is here to stay, and you can feel the spill-over effect across jurisdictions, regardless of whether or not issuers belong to the Eurozone.

“The only question now is, how tight will it go from here?”

Credito Emiliano today (Thursday) followed Nordea with a Eu750m seven year OBG at 25bp over mid-swaps that a syndicate banker at one of its leads said came 5bp through its curve on the back of a Eu2.9bn book. He said that the real money component of the book was “extraordinarily high”.

“The comfort that the covered bond purchase programme offer the market is enough to give even the most cautious investors the confidence to come in,” he said. “Indeed it is not too strong to say that CBPP3 is forcing investors to come into trades — it really is.”

And Banco Sabadell is expected with the first benchmark Spanish covered bond since July tomorrow (Friday), after it announced a mandate for a seven year today.

Email this to someoneShare on LinkedInTweet about this on TwitterShare on Google+Share on FacebookShare on RedditDigg thisPin on PinterestShare on Tumblr
Tags: , , ,