Korea Housing Finance Corporation is set to price a $500m five year issue today (Monday) – the first benchmark covered bond since 5 July – buoyed by a strong Asian bid as sentiment in Europe remained weak.

Italian and Spanish government bond spreads had at one point this morning widened by around 25bp and 30bp, respectively, with uncertainty around the peripheral sovereign debt crisis continuing to drive sentiment, according to syndicate bankers.

“It’s fairly weak out there,” said a syndicate official, adding that secondary market flows in the covered bond market were limited. “Until there is further clarity we are expecting things to drift wider.”

Covered bond spreads were generally holding up well relative to movements in the sovereign market, but further covered bond supply was not likely for this week, said syndicate officials.

A strong Asian bid allowed KHFC to enter the market in spite of European markets remaining under pressure, said a syndicate banker at one of its leads – BNP Paribas, Nomura and Standard Chartered.

Orders of around $1.25bn on an unreconciled basis had been gathered by the time The Covered Bond Report went to press, with the order books still open as the leads waited on US interest. The issue size is fixed at $500m, with guidance set at the 225bp over US Treasuries area, although this was likely to be tightened given the level of demand.

Today’s issue is KHFC’s second cross-border benchmark, with its first, a $500m five year issue launched in 2010, trading at around 162bp over mid-swaps, according to a syndicate banker at one of the leads.

He said that strong feedback from a roadshow and good demand from Asian accounts paved the way for the new issue, with the publication of bank stress test results on Friday also influencing the timing of the transaction as this helped remove a degree of uncertainty from the market. Eight banks were revealed as having failed the stress tests when the European Banking Authority announced the results.