A Eu1.5bn five year deal for UBS priced yesterday (Tuesday) was its largest covered bond in two years, as the Swiss bank found that the relative tightness of its curve attracted rather than deterred investors, according to a syndicate official at one of the leads.

The issuer was one of three to kick off benchmark covered bond supply for the year, bringing a five year deal in the low 60s over mid-swaps via BNP Paribas, Commerzbank, ING, Natixis, UBS and UniCredit, with Caisse de Refinancement de l’Habitat and ING Bank also in the market (see separate stories).

Around Eu1.65bn of orders were gathered for UBS’s deal, with the spread fixed at 61bp over.

Some market participants away from the deal said that the guidance included a smaller new issue premium than that incorporated in new issues for CRH and ING, and that this appeared somewhat aggressive.

One put the new issue premium at around 10bp-12bp, and said he wondered whether UBS took the view that a skinnier new issue concession was reasonable given that it was coming with a shorter dated deal than CRH and ING, which sold 10 year bonds. Natixis analysts put the new issue premium for UBS’s deal at around 15bp, in line with that for CRH’s issue and 5bp smaller than a 20bp concession on ING’s benchmark, while a syndicate official saw the new issue premium at around 5bp-7bp.

Armin Peter, UBS

Armin Peter, head of covered bond business and syndicate at UBS, said that initial price thoughts had focussed on a 60bp-65bp range, which implied a 10bp new issue premium, and that pricing of 61bp over ultimately meant the new issue premium amounted to 7bp.

“It’s more than what we paid in August, when the new issue premium was 4bp, but well inside the new issue premium paid by the last Swiss covered bond,” he told The Covered Bond Report.

UBS priced a Eu1bn three-and-a-half year benchmark at 27bp over on 25 August 2011, while Credit Suisse sold a Eu1.25bn seven year at 62bp over on 11 October.

“We were a bit cautious, and perhaps curious about what the impact would be when we realised that UBS is the tightest curve in the meantime,” added Peter.

He said that around a year ago UBS offered a good premium over German Pfandbriefe and Scandinavian covered bonds, with levels on a par with or slightly inside the likes of ING Bank and French issues.

“Now the French and ING are much cheaper, and it seems we are tighter than DNB and the Scandis,” he said. “So in that respect we are very pleased with the outcome of a Eu1.5bn deal, which we hadn’t done for some time.”

The last Eu1.5bn deal for UBS was in January 2010, which the bank followed up on with a Eu1.25bn issue in April that year. Its euro benchmarks since then have been for Eu1bn.

More than 135 accounts participated in the new issue, with Peter noting that some investors even switched out of French covered bonds into UBS’s deal.

“People realise that UBS is one of the most stable covered bond curves and that bodes well in the current market environment,” he said. “Hopefully it stays that way – we don’t mind.”

UBS’s covered bonds are not eligible for the ECB’s second covered bond purchase programme (CBPP2), but Peter said this was not negative for the deal.

“We would have had a bigger deal if we had central banks placing Eu200m clips,” he said. “It’s a shame, but on the other hand we don’t need it.”

German accounts took 49% of the bonds, Nordics 22%, the UK 9%, Switzerland 5%, France 3%, the Benelux 2%, and others 10%. Banks were allocated 43%, managed funds 32%, insurance companies 11%, sovereign funds and supranationals 6%, private banks 4%, and others 4%.