ING Belgium issued a €1bn May 2029 covered bond on Thursday at 5bp over mid-swaps from 9bp over initially. The borrower paid a new issue concession of 3bp having built an order book of €1.4bn through joint leads Danske Bank, DZ Bank, ING, LBBW, Raiffeisen Bank International, Santander and Société Générale.
The deal was issued in a difficult market with global equity indices falling between 1% and 3% on Thursday and Markit’s Senior Financials index widening by 3bp to 107bp, its widest level in over a year.
The bearish mood came in the wake of Wednesday’s higher than expect US CPI reading of 8.3% and hawkish comments from the European Central Bank’s president, Christine Lagarde, who suggested a rate increase could surface as soon as July.
Despite the challenging backdrop leads on the Belgian deal recommended that the issuer press ahead with intraday execution. “We said 'go', thinking that so far covered bonds have shown resilience to the broader market backdrop,” said one.
So far this year ING has issued two deals under its Dutch covered bond programme and one deal under its German programme with a total value of €3.75bn. However, its Belgium subsidiary has not issued a covered bond since February 2020, causing the same person to say the deal “should go well, even if the market is not top notch”.
He conceded that on a good day the issuer could have expected an order book of more than €2bn. Though the corporate bond market was on top form this week, the senior unsecured market for financial issuers was unloved, with no deals surfacing this week.
As such “covered bonds are the market segment issuers are looking to take funding from,” said a second banker on the ING deal.
The closest transactions for price comparison were the issuer’s February 2030 and September 2026 bonds, which were respectively indicated at 3bp over and 2bp through mid-swaps.
As such, fair value was spotted in the region of 2bp, meaning that the 5bp reoffer spread paid a modest 3bp new issue concession, which was in line with recent deals from strong core eurozone borrowers.
However, the order book was mainly filled with demand from bank treasury accounts. Real money interest from asset managers and insurers was lacking compared to recently issued deals. These buyers have tended to play more in the long end. “This was the right maturity for today’s market,” said the same second lead manager.
He noted that ING Belgium is a name that many investors consider important to buy. “On a day like today investors need a really special name and will often pass on smaller names,” said the same person, alluding to a €500m eight year deal that was simultaneously issued by Eika Boligkreditt and clearly struggled.