Slim pickings after busy July, with Nordics expected to wait

With the market entering the middle of the continental European summer lull, benchmark covered bond or senior supply is unlikely to resume until after next week at the earliest despite generally supportive conditions, according to syndicate bankers, with Nordic issuers expected to wait until the investor base returns to the office.

No new benchmark covered bonds or senior unsecured deals were launched in the euro market this week, with the only activity coming in the senior market, where Abbey tapped a Eu800m May 2019 FRN by Eu400m yesterday (Thursday).

This week’s inactivity follows the second heaviest July in the euro covered bond market, with benchmark supply having totalled Eu17.75bn last month, comprising 22 deals. Meanwhile, supply in US dollars and sterling reached $3.5bn (Eu3.2bn) and £800m (Eu1.1bn), respectively.

While not hitting the same highs, senior supply had also picked up into last week, following the market’s reopening in mid-July on the back of a positive outcome from Greek negotiations.

Successful deals were completed in the Additional Tier 1 (AT1) space this week, with Barclays on Tuesday pricing a £1bn perpetual non-call seven deal at 7.875%. RBS followed on Wednesday, launching an inaugural dual-tranche AT1. With order books over $13bn, a $2bn perpetual non-call five tranche was priced at 7.5% and a $1.15bn perpetual non-call 10 at 8%.

However, Robert Chambers, FIG syndicate at Crédit Agricole CIB, said those waiting for new deals in other asset classes could interpret little from the demand such deals had received.

“There’s been a very limited supply of high yielding products in the financial sector over the past two to three months,” he said. “Investors are still hungry for yield in this low rates environment, so these AT1 products have been received well over the course of the past week.

“In lower beta funding formats, though, liquidity is beginning to dry up, and while we may see some taps here and there, it looks like benchmark issuance is going to stay quiet as we enter the middle of summer.”

Despite citing market conditions as being likely to remaining generally supportive, syndicate officials predicted the wait for new deals could last until at least mid-August, when more investors have returned.

“Investors are still happy to put cash to work, but from an issuer’s point of view it’s a case of getting the focus you require to ensure the size you would want,” Chambers said. “Even with a stable market backdrop, if the usual investors are not in the office you risk falling short.”

Another syndicate official agreed, stating that while a new deal could not be ruled out, an issuer would be unlikely to take the risk.

“This stasis will most likely continue,” he said. “Maybe the market does have a surprise up its sleeve, but it would be just that — a surprise.”

Meanwhile, Alex Sönnerberg, Nordic FIG DCM origination at Crédit Agricole CIB, said that current basis swap levels mean the euro covered bond market looks more attractive than the domestic market for Swedish issuers, offering around 5bp-10bp depending on the issuer and part of the curve.

He also noted that most of the listed banks in the Nordic region have now reported quarterly results and left their blackout periods. However, he said the banks were unlikely to follow up with new deals.

“I believe Nordic issuers will hold off launching new benchmark transactions until the continental European investor base is back in the office, but perhaps we’ll see one or two opportunistic taps in the meantime,” he said.