Investors forfeit new issue premiums for BoE-eligible paper

* 2 BoE-eligible corporates hit sterling market

* Northumbrian Water could price inside curve

* BoE to publish purchases from next week

By Tom Porter

LONDON, Sept 29 (IFR) - Two companies with bonds eligiblefor the Bank of England's purchase programme hit the market onThursday, giving sterling investors another chance to bet onmonetary policy-fuelled secondary performance.

The central bank has been purchasing investment-gradecorporate bonds in the secondary market since Tuesday, as itlooks to buy up to £10bn over the next 18 months via reverseauctions held every Tuesday, Wednesday and Friday.

Northumbrian Water and Deutsche Telekom, whose outstandingsterling bonds are on the eligible list published on September12, both launched new trades in the currency on Thursday.

The pair of BoE-eligible trades come shortly after BASFpriced the first such deal on Wednesday, a £250m seven-year soldat Gilts plus 67bp.

Northumbrian Water looks set to price the new deal insidewhere its existing bonds are trading, with DT offering virtuallyno premium, suggesting buyers are banking on the BoE sendingspreads even tighter.

But unlike the European Central Bank, which has beenshopping in the primary market for corporate bonds, the BoE willonly be buying in secondary.

That is an additional comfort for investors, according toone corporate syndicate official in London.

"If you're an investor you're happier with the BoE approach,because overall more of the benefit should accrue to you ratherthan the issuer," he said.

"The ECB gets involved in primary, so you have less say onthe price and theoretically the issuer gets some of yoursecondary performance priced in."

Northumbrian Water launched a £300m 10-year trade throughBarclays, Lloyds, RBC and Royal Bank of Scotland, with initialprice thoughts at 105bp area over Gilts.

By midday the leads had over £950m in the book, and hadhauled in guidance to 95bp area plus or minus 3bp.

The issuer's 2023 bonds were bid at 96bp pre-announcement,while its 2033s were bid at 93bp, according to a lead manager,who said that put fair value no lower than 93bp.

Given the three times subscription, bankers away from thedeal expected pricing at the tight end of the range, which wouldgive a negative new issue premium on that basis.

Deutsche Telekom opened books on a seven-year deal at Giltsplus low 90bp area through Lloyds, RBC, and RBS. Books werearound £375m by midday in London, with no change in the priceguidance.

Bankers away from the trade saw it as another tightly priceddeal with virtually no new issue premium. One quoted DT's 2022strading at 79bp and its 2028s at 104bp before the new deal wasannounced.

The BoE sparked a sharp rally in sterling corporate bondspreads with the announcement of its purchase programme onAugust 4. Nearly £9bn of investment-grade sterling issuance hasbeen raised by corporates since that date, versus £4.7bn for therest of 2016.

The market will have to wait until October 6 for the BoE toreveal how successful it has been in picking up assets insecondary. It will publish a running total of its purchasesevery Thursday from next week. (Reporting by Tom Porter)