for example, used spread guidance for the
YEARûNON
CALLûlVEûANDû
YEARûNON
CALLûû
subordinated bonds priced last Friday.
Daiwa Securities Group is also using spread
guidance for an issue of perpetual non-call
lVEûANDûPERPûNON
CALLûûSECURITIES ûBUTû
market swings forced both issuers to adjust
their guidance ranges during marketing.
Orix ended up pricing the subordinated
bonds at 80bp and 100bp over mid-swaps,
respectively, both 10bp outside initial price
guidance ranges, an extremely rare event in
the domestic market.
-EANWHILE û$AIWAûHASûSETûmOORSûATûû
and 1.3% for its bonds due to be priced on
March 10.
Both Orix and Daiwa started marketing as
long ago as February 26, exposing
THEMSELVESûTOûWEEKSûOFûMARKETûmUCTUATIONS
“What we need to do for the yen market
to avoid market risk, especially when
interest rates move a lot, is to shorten the
marketing period, not adopt coupon
guidance,” a syndicate banker away from
THEû!mACûDEALûCOMPLAINED
The US insurer did this as well. It began
marketing on Thursday and continued until
midday on Friday and priced the issue at
2pm Tokyo time to avoid weekend risk. The
process only lasted half as long as the usual
three days for an international yen deal and
was far shorter than in the domestic market.
Lifers, megabanks, trust banks, asset
managers, specialised banks, central public
accounts and regional investors bought the
5.5-years; trust banks and regional investors
were buyers of the 10-years; lifers, trust banks,
specialised banks, central public accounts and
regional investors took the 15-years; and lifers
and regional investors purchased the 20-years.
!Sû!mACûHADûNOTûSOLDûMID
TERMûNOTESûINû
the past few years, this 5.5-year tranche
drew demand from new investors.
Mizuho, Morgan Stanley and SMBC Nikko
were joint lead managers for the capped
deal. The book size was around ¥80bn–
¥90bn, a banker on the deal said.COVERED BONDS
EUROS
NEW COVEREDS RESILIENT EVEN AMID
MARKET SLIDECovered bonds from COMMERZBANK, LUMINOR
BANK and EIKA BOLIGKREDITT last week
demonstrated that the primary market is
open for business in spite of coronavirus-
inspired volatility, albeit with higher
premiums required.Commerzbank’s deal last Tuesday, the
lRSTûMAJORûCURRENCYûBENCHMARKûFROMûAû
European bank since February 24, raised
hopes that issuance can continue in relative
normality after the spread of the
coronavirus rocked equities.
The German lender reopened the market
earlier than some participants had expected,
after a rebound in equities continued into
Tuesday morning.
The recovery was inspired by hopes of
central bank stimulus to address the
economic impact of the outbreak – hopes
that were partly realised later on Tuesday as
the Fed cut rates by 50bp in an emergency
move, though that did lead to more selling.
Leads Commerzbank, DZ Bank, Natixis,
NordLB, Santander and TD opened books with
initial guidance of mid-swaps plus 10bp
area.
At that level, Commerzbank was offering
a pick-up of around 8bp versus its mid-
secondary curve.
h;)04SûOF=ûBPûAREAûDOESûOPTICALLYûLOOKû
wide compared with where we were two
weeks ago, but this is not the same market
as two weeks ago,” said a syndicate banker
away from the leads.
4HEûSPREADûWASûSUBSEQUENTLYûlXEDûATûBPû
for a minimum size of €1bn, before the
bond was launched for €1.25bn with the
lNALûBOOKûSTANDINGûINûEXCESSûOFûõBN
“It proves the market is open and there is
a price for risk, and that price is not
ridiculous,” said a syndicate banker at one of
the leads.
#OMMERZBANKSûlNALûCONCESSIONûOFû
around 6bp is relatively big for a Triple A
rated covered bond but was appropriate,
some bankers said, given the market
backdrop.
!SûTHEûlRSTûISSUERûTOûTESTûTHEûWATERS û
Commerzbank faced a tricky price discovery
process.
Covered spreads were relatively stable
while riskier assets suffered last week, but
bankers questioned if secondary spreads
pointed to true clearing levels.
The lead syndicate banker said the
concession was closer to 3bp taking into
account the secondary levels of more
recently-issued covered bonds.
“Bid/ask is much wider than you’d expect,
SOûMIDSûAREûNOTûAûTRUEûREmECTIONûOFûRISK ûANDû)û
think you have to consider more recent
supply to see where valuations are,” he said.
“3bp new-issue premium is not a bad
outcome considering the rates moves we’ve
seen in recent weeks.”
A fall in underlying rates has driven
covered bond yields to their lowest since
September, potentially curbing interest
from some accounts.
The average yield of the iBoxx EUR
Covered index stood at –0.222% on Monday.More than 92% of euro covered bonds are
trading with negative yields, according to
Tradeweb.
The deal was priced with a coupon of
0.01% to yield –0.105%.
Luminor followed on Wednesday with the
lRSTû%STONIANûCOVEREDûBONDûEVER ûPRICINGûAû
õMûlVE
YEARûATûBPûSEEû%-ûSECTIONûFORû
more).
Eika the next day had to contend with
more challenging market conditions, as
European shares slumped on Thursday
morning.
After a positive open, the stock market
lost gains on signs that the economic
turmoil stemming from the coronavirus
outbreak could outweigh any impact from
central bank action.
The €500m (no-grow) seven-year deal was
offered with initial guidance of mid-swaps
plus 15bp area, by leads Commerzbank, Credit
Agricole, Deutsche Bank, Santander and
Swedbank.
4HEûSPREADûWASûULTIMATELYûlXEDûATûBPû
with books over €1.1bn, pre-rec.
Bankers said the result showed that
covered bonds can still be executed amid
spikes of intraday volatility.
A syndicate baker at one of the leads said
the result was particularly impressive
because the Norwegian deal is not eligible for
the ECB’s covered bond purchase programme- unlike last week’s other covereds.
“This is the deal that, without any support
from the central bank and with disruption
in the market, has shown more than any
other that the covered bond market is alive
ANDû;DEALS=ûAREûACHIEVABLE vûHEûSAID
Bankers said that the scarcity of
Norwegian paper helped to ensure the deal’s
success even after the market turned, as it
was only the second euro benchmark
covered bond from the jurisdiction this year.
The deal offered a 2bp–3bp pick-up over
Eika’s secondaries.
“It is a good blend between paying up for
the volatility and paying a fair price,” said
the lead syndicate banker.
36 International Financing Review March 7 2020ALL COVERED BONDS (ALL CURRENCIES)
BOOKRUNNERS: 1/1/2020 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)Source: Refinitiv SDC code: J15a1 Barclays 25 5,525.64 8.5
2 HSBC 19 4,483.70 6.9
3 BNP Paribas 12 2,941.52 4.5
4 UniCredit 16 2,888.15 4.5
5 Credit Agricole 12 2,753.74 4.3
6 Natixis 13 2,612.26 4.0
7 DZ Bank 16 2,607.13 4.0
8 Credit Suisse 10 2,554.33 3.9
9 Commerzbank 11 2,536.65 3.9
10 ING 11 2,503.25 3.9
Total 73 64,741.716 IFR Bonds 2323 p 25 - 53 .indd 36 06 / 03 / 2020 19 : 18 : 07