Frantic European primary bond market on hopes of sustained rally

LONDON, Sept 10 (IFR) - The European primary bond market witnessed one of its busiest sessions of 2012 on Monday as issuers from across the board sought to make the most of renewed investor confidence, and hopes this rally can be sustained.

Over EUR14bn was raised in 19 deals, a sign that investors are prepared to put serious money into European names across all jurisdictions.

The financials sector, in particular, saw a sharp uptick in supply, including some from the types of institutions that have been shut out of the market for much of the year.

Deals for Banesto and LeasePlan, who last sold bonds in the spring, are expected to be replicated by some of the continent's trickier names.

"Some of the supply we are seeing is driven by the fact that there is some event risk ahead and issuers are trying to get ahead of that," said Jonathan Brown, European head of bond syndicate at Barclays.

"However, we expect this pace to continue for some time given the ECB took any possible tail-risk off the table, and potential redenomination risk, and investors can invest in euros with renewed confidence in the currency."

Demand on some of the deals, notably for corporates, was overwhelming. A dual-tranche 5.5 and 10-year issue for Baa1/A- rated ENI spin-off SNAM attracted EUR12bn of investor demand, with over 1000 accounts said to be participating.

Brown said that this rally feels like it could have greater longevity compared to those seen after the ECB's LTROs in December and February.

SLOWER FOR SOME

Borrowers that had previously delayed raising funds are now looking again at the market, but Brown explained conditions are not completely normal.

"Some investors are still wary of jumping in and we haven't complete consensus" he said. "They are a few that fundamentally don't want to get back in. However, it doesn't take a huge amount of investors shifting to from underweight to neutral for it to have an impact on the primary market."

The scale of investor appetite for second tier periphery financial names like Banesto paled in comparison with that seen on corporate deals. The bank priced a EUR500m long four-year covered bond, the first deal from a second tier peripheral financial in over six months. Lead managers managed to gather over EUR700m of orders from over 60 accounts, pricing in line with guidance at 395bp over mid-swaps.

Meanwhile, a EUR600m 3.5-year bond for Instituto de Credito Oficial led by BBVA, Credit Agricole, Goldman Sachs and Santander struggled to gather strong momentum and ended up with an order book just over the final issue size, pricing in line with guidance of 65bp over Spanish government bonds.

"There is clearly demand for Spanish risk, but this ICO trade may have come too soon after the ECB, and in my opinion, rests on the debate on whether 65bp was a big enough differential versus Spanish government bonds which benefit directly from the ECB's OMTs," said a banker, referring to the central bank's Outright Monetary Transactions programme announced last week. (Reporting by Helene Durand, additional reporting by Natalie Harrison; editing by Alex Chambers)