Successful long dated SSA transactions last week and a period of relative market stability gave ING Bank confidence it would be able sell a covered bond of at least Eu1bn and reopen the benchmark market, an official at the issuer told The Covered Bond Report.

The Dutch bank yesterday (Wednesday) sold a Eu1.75bn 10 year transaction at 80bp over mid-swaps, in line with guidance of the 80bp over area, after gathering orders marginally in excess of Eu2bn. Barclays Capital, BNP Paribas, Deutsche Bank and ING were bookrunners.

Martin Nijboer, head of long term funding at ING, told The Covered Bond Report that although the issuer was confident it could raise at least Eu1bn, the final outcome surpassed expectations.

The success of some eight and 10 year deals in the supranational, sovereign and agency market last week was key to ING’s decision to tap the market, with Nijboer saying they gave him the confidence that the issuer could gain traction for a long dated covered bond.

The 10 year maturity was a natural choice, said Nijboer, given that the issuer had already sold seven and five year transactions earlier this year, and was fortunately also the tenor in which SSAs had encountered good demand last week.

“If the SSAs had done short dated deals we would not have gone ahead with a 10 year,” he said.

A covered bond issue was the only funding instrument that came into consideration for ING at this time, added Nijboer.

“We did quite a lot of senior unsecured funding when the market was open, but it is closed now and secondary market levels are quite wide,” he said. “It was not really an option.”

Syndicate officials away from the leads said that pricing of 80bp over included a new issue premium of around 15bp over, and Nijboer said a premium of around that size was necessary to reflect market volatility, which secondary market levels did not reflect.

Achim Linsenmaier, head of covered bond syndicate at Deutsche Bank, said that the pricing took into account secondary market flows, yield targets flagged by some accounts, and new issue premiums that had been paid in previous years to reopen the market after a period of stress.

“Secondary market flows, for example in French covered bond in small sizes, clearly showed that investors want to see yields of 3.5% or more and that the spread on ING’s deal would need to go in this direction,” he said. “All these considerations pointed to 80bp over as the level at which a 10 year deal would work, which turned out to be spot-on.”

Demand for the bonds grew steadily throughout yesterday morning, reaching Eu1.9bn by around midday, according to one of the leads. Eighty-seven accounts were in the final order book, with only three orders for Eu100m or more and 47 taking Eu10m or less.

Nijboer said that the issuer arguably could have gone for a tighter re-offer level, but that its priority was to ensure a successful transaction.

“You need to be able to come back again,” he added.

Asked whether he felt a sense of responsibility in reopening the market, Nijboer said: “Absolutely.”

“You want to do a good, successful transaction that means the market remains open for others,” he said. “If you go out with a 10 year you should show leadership and be strong.”

Syndicate officials had in the previous days discussed the merits or otherwise for issuers of being the one that reopens the market. Nijboer said that being the first mover allows an issuer to “set the tone” and avoid risking having to come to market at wider spreads resulting from further supply.

“You really want to try to achieve a clear window and focus investors’ attention on your transaction,” he said. “Yesterday was a perfect day for that.”

German demand led the transaction, accounting for 46% of allocations, followed by Asia with 11%, France and the Benelux with 10% each, the Nordic area 6%, the UK and Austria 5% each, and others 7%, according to one of the leads. Banks took 42%, just shy of a 43% share allocated to real money accounts (asset managers 25%, pension funds 5% and insurance companies 13%), with central banks buying 15% of the bonds.