A perceived lack of short dated new issues since the covered bond market reopened last week prompted Barclays Bank to opt for a three year maturity for what ended up being a Eu2bn deal yesterday (Tuesday) that surpassed expectations, a syndicate official at Barclays Capital told The Covered Bond Report.

The bank yesterday reopened the euro benchmark market for UK issuers with a Eu2bn three year Regulated Covered Bond that was priced at 52bp over mid-swaps, in line with guidance of the 52bp over area.

Leads Banca IMI, Banco Bilbao Vizcaya Argentaria, Barclays, BNP Paribas, Citi and Danske Bank built an order book of Eu2.3bn, with 107 different investors participating, said Torsten Elling, co-head of euro rates syndicate, Barclays Capital.

“It’s fair to say that the deal went better than expected given that we were able to print Eu2bn in this market and with four deals live simultaneously,” he said. “We were surprised by the amount of orders we received in the end, but clearly we were happy to take them and make sure that investors who went for our issue would not be disappointed by allocations.”

The issuer was initially aiming for a Eu1bn plus deal, perhaps stretching from Eu1.25bn-Eu1.5bn, but felt that the strength of the order book justified printing a Eu2bn deal, he added.

Barclays began monitoring the market for an issuance opportunity once ING Bank reopened the sector last week, and announced the mandate for a three year deal on Monday afternoon for execution yesterday morning.

“We saw deals for different issuers, different jurisdictions and different maturities all working quite nicely, but also felt that there was an underrepresentation of the short end of the curve,” said Elling. “We knew from an ALM perspective that a three year would fit very nicely into our curve currently and therefore took a closer look at it.”

A re-offer spread of 52bp over mid-swaps included a new issue premium of 8bp-10bp, according to Elling.

A January 2015, the shortest dated outstanding covered bond from Barclays Bank, was trading at around 40bp last week, and then at 42bp-37bp on Monday morning before the mandate announcement, he said.

“The 50bp over level seemed fair value to us for the that part of the curve, and then yesterday morning that bond was slightly wider, at around 45bp-39bp,” said Elling. “If you take the pre-announcement level and adjust it for the curve I think with a spread of 52bp over we still had a new issue premium of 8bp-10bp.”

While it would be somewhat “far-fetched” to talk about UK covered bonds as benefiting from a safe haven bid they are “clearly diversification trades”, he said.

“I would not go as far as to call it a safe haven bid, but non euro-zone countries are getting a preferential bid from accounts seeking to avoid further investment in euro countries,” he added.

The amount and range of supply that has hit the market since last week is encouraging, according to Elling.

“Even with four different transactions in the market yesterday the market was not really distracted in any way,” he said. “It absorbed the supply quite easily, and investors could choose between different maturities, issuers and jurisdictions. I think there was something for everybody.”

German investors were allocated 31% of the bonds, Scandinavia 24%, the UK 17%, Austria 5%, France 4%, eastern Europe 4%, the Benelux 3%, Switzerland 3%, Italy 2%, and others 7%.

Banks took 58%, asset managers 23%, central banks 14%, insurance companies and pension funds 2%, and others 1%.