EUROBONDS: Primary Market Gallops On As Greek Caution Subsides

The European primary bond market stepped up the pace Tuesday as issuers embraced the improved sentiment, shaking off the cautious tone seen in the wake of the Greek debt exchange last week.

Banks and SSAs--or sovereign, supranational and agency borrowers--dominated the deal flow, with Banco Santander SA (STD) leading a brace of Spanish offerings through its Santander International Debt SA subsidiary.

Santander is set to price the EUR1 billion, five-year, senior unsecured bond at 250 basis points over midswaps, the fourth senior deal from a Spanish bank this year.

It comes a day after euro-zone finance ministers agreed to relax Spain's budget deficit target this year to 5.3% of gross domestic product and warned it must stick to its 3% target next year, as outlined in the region's new fiscal pact.

Spain's state-owned business support group Instituto de Credito Oficial, or ICO, was also in the market, seeking to price a four-year deal at 55 basis points over the reference Spanish government bond. It is ICO's second benchmark-size, euro-denominated deal this year, following a EUR2 billion, five-year bond in January.

Additionally in the SSA sector, German state-owned development bank KfW is looking to price a seven-year euro deal at three basis points over midswaps. It is the fourth benchmark-size euro deal from KfW this year, having already raised EUR10 billion from the previous three sales.

Leeds Building Society reopened the sterling covered bond market with a GBP250 million, three-year floater. Initial guidance is in the area of 158 basis points over the three-month Libor. It is the first benchmark-size sterling deal in almost three weeks.

Norwegian lender DNB Boligkreditt was also in the covered bond market Tuesday, looking to price a EUR2 billion, 10-year deal at 61 basis points over midswaps. It is DNB's second covered bond this year, following a EUR2 billion, five-year offering back in January.

Network Rail led a trio of non-financial deals. The U.K. train operator is planning to tap its 15-, 25-, and 35-year sterling paper.

BAA Funding Ltd., a holding company for U.K. airport operator BAA, is planning a sterling-denominated class B bond, while German utility RWE AG (RWE.XE) is also in the market with a subordinated hybrid capital bond.

The cost of insuring European corporate debt against default remained lower as immediate concerns over Greece begin to subside.

Around 1345 GMT, the iTraxx Europe index, which comprises 125 high-grade borrowers, 25 of which are banks and insurers, was two basis points tighter at 132/132 basis points. The Crossover index of 40 mostly sub-investment-grade European corporate borrowers was 10 basis points tighter at 573/576 basis points.

-By Ben Edwards, Dow Jones Newswires; 44-20-7842-9287; ben.edwards@dowjones.com (Sarka Halas in London contributed to this article.)

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