* Banks surpass March covered bond supply total in second week of April
* Spanish and Italian banks wait for Cyprus dust to settle
* Trio poised to ride issuance wave
By Aimee Donnellan
LONDON, April 12 (IFR) - The strongest banks and insurance companies are scrambling to sell euro deals before rival banks from the eurozone periphery make a post-Cyprus return to the market.
In a financial market plagued by volatility, issuers seeking euro funds have finally woken up to the reality that a return to market instability could mean higher funding costs and reduced access to the debt capital market space.
Banks and insurance companies have sold over EUR8bn-equivalent in the past week across the senior, covered and subordinated bond sectors after a lack of supply in March drove FIG spreads tighter and left investors scrambling for bonds.
The covered bond deals, sold mostly to European investors, exceeded the entire supply in the sector for the entire month of March.
"We are happy to see so many high quality names in the market again," said Dan Lustig, senior credit analyst at Legal & General.
"Although there has been a low level of supply lately pricing is still very important. We would ideally like more compensation for getting involved in longer dated deals but there are no bargains in this market."
Volatility rose after the proposed levy in Cyprus on insured savers, and once again after the punitive restructuring of its banking sector was deemed a template by chairman of the Eurogroup of finance ministers, Jeroen Dijsselbloem.
And although the FIG sector mostly recovered last week, fears remain, especially after Portugal came back into focus.
A five-year senior bond from Portuguese bank BES was hard hit and reached swaps plus 471.5bp earlier this week, more than 70bp wider over the past month.
This pressure, although confined to Portugal, has already had an impact the funding plans of Spanish and Italian banks that are choosing to avoid the market altogether to avoid increased execution risk, bankers said.
According to Armin Peter, head of syndicate and FIG flow at UBS, both investors and issuers have woken up to concerns about spread widening, bail-in, Cyprus and the Italian political deadlock.
Investors are still on a relentless hunt for yield, but pitiful supply in March has left them with little choice but to place sizeable orders for lower yielding offers.
"The Italian election results, SNS, Cyprus and the Slovenian banking crisis are in the background and have made investors more cautious but have so far failed to change the direction of the market due to global liquidity actions," said L&G's Lustig.
It's easy to understand why core issuers are seeking to capitalise. The Senior Financials index has ground over 40bp tighter to 165bp since the end of March. Despite this, fears remain that volatility will show its face once again.
And in the pipeline, La Mondiale is eyeing a potential capital markets transaction and Vorarlberger LB and Sparkasse KolnBonn have both hired banks to sell covered bonds.
LESSONS LEARNED
Issuers appear to be taking a cautious approach to getting deals done. HSBC, Nordea and BNP Paribas were all rewarded with sizeable order books after offering relatively attractive spreads for their deals.
Even Munchener Hypo gave up its aggressive pricing stance, and sold a deal at plus 3bp, a far cry from the sub-Euribor levels it had grown accustomed to last year.
This careful execution strategy has been met with strong secondary performance, and investors say they want more of the same in the future.
Continued steady performance could be feasible as bankers say supply will likely continue at more moderate pace.
"The market has clearly sprung back to life this week having been relatively dormant for the past month but I'm afraid that despite the positive sentiment, supply will not be able keep that pace," said Ralf Grossmann, head of covered bond origination at Societe Generale.
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