Launching its second deal of the year before the full onset of summer holidays “turned out to be a good idea” for ABN Amro, an official at the issuer told The CBR, but there was no sign this (Wednesday) of follow-up deals despite the “clear signal” sent by the issue, said bankers.

Some 170 accounts placed more than Eu4.3bn of orders in aggregate for the seven year deal, which ended up being sized at Eu1.5bn and priced at 52bp over mid-swaps via leads ABN Amro, Barclays, BNP Paribas, HSBC and RBS. Guidance had been set at the 55bp over area, after initial price thoughts of the high 50s.

“It was a really lovely deal,” said a syndicate official away from the leads. “The issuer had really good timing, with there having been such a lack of supply and spreads having tightened in the previous weeks.”

Spreads for core covered bonds have tightened by 10bp-15bp in recent weeks, said another syndicate banker, reaching year lows and levels as tight as those seen in the summer of 2010.

Some issuers were said to be weighing up issuance opportunities after ABN Amro’s deal, but there was no sign of imminent new issue interest despite supportive technical conditions, according to syndicate officials.

“Strong names from core jurisdictions will just fly,” said one, citing a lack of new issuance and bonds in the secondary market, an exceptional liquidity situation following the ECB’s longer term refinancing operations (LTROs), the ECB’s deposit rate cut, and a “collapsing” periphery.

“There’s a massive distortion,” he said.

Jez Walsh, head of covered bond syndicate at RBS, said ABN Amro’s deal is a clear signal of the extent of demand that is available for issuers to tap into, but that the issuer had to overcome poor market conditions to do so.

“The market definitely felt better yesterday than it did on Monday, but it was still weak,” he said. “You can argue flight to quality, but that is often confined to core govvie markets, so if you’re going to bring a deal when markets are deteriorating you have to bring the right trade, and this was definitely the right sort of name.”

A syndicate official away from the leads said that ABN Amro’s deal and a £4bn 2044 Gilt issue for the UK Debt Management Office that was also in the market yesterday showed how strong the force of cash driven appetite can be, with the imbalance of supply and demand too high for accounts to not get involved in new issues if they want to earn a coupon.

ABN Amro’s and the UK’s transaction show that markets remain open despite people gradually going on holiday and secondary market liquidity drying up, he said.

Daniëlle Boerendans, head of covered bonds, ALM/treasury at ABN Amro, said that the issuer was aware that there had been a lack of Dutch covered bond supply and the implications this would have for demand, but that this could not be taken for granted.

“It’s always tricky when the market is volatile,” she said. “On Monday we saw a poor backdrop, so you never know what is going to happen once you open books.”

She said the issuer decided to approach the market after having observed spreads tighten in the covered bond and senior unsecured markets, and to beat a rush of issuance after the summer holidays.

“We thought there is still momentum in the market and that it is better to do a deal now than wait until after the summer when everyone wants to come to market,” she said. “It turned out to be a good idea.”

The transaction means that ABN Amro has raised more than 80% of wholesale funding earmarked for 2012, said Boerendans.

“We did a lot in senior unsecured this year, but we are also a committed and experienced covered bond issuer and want to come at least twice a year to the market with a benchmark transaction,” she said.

The deal was launched at short notice, with RBS’s Walsh noting that the mandate was only awarded yesterday morning and the leads at around 0930 CET deciding to proceed and officially open the order books.

“The curve between five and seven years and between seven and 10 years is steeper than it used to be in terms of credit spreads,” he added, “so we favoured a seven year maturity.”

A syndicate official away from the deal said that a re-offer spread of 52bp over mid-swaps incorporated a “very generous” new issue premium of 12bp, with the issuer’s new seven year deal coming flat to where an April 2021 deal was trading, while another put the new issue premium at 7bp.

Another syndicate official said that after a market opening that was “all but supportive for a bullish day” initial price thoughts of the high 50s offered an attractive new issue premium to get momentum going, with final pricing incorporating a much smaller concession.

“The issuer was probably not thinking last week of going ahead with a trade like this, but why not hit the bid while there is one?” he said. “A couple of basis points new issue premium and the right starting strategy (for the right name indeed) got things going, and while all recent covereds probably priced on top or even through their curves, a 2bp insurance premium for success today is maybe much less than potential spreads post summer on the back of the potential developments in light of recent newsflow.”

RBS’s Walsh said that measuring new issue premiums can be a subjective exercise, with prices in the covered bond secondary market not as visible as those in some other markets and some covered bonds trading at such high cash prices that there are big differences between mid-swap and asset-swap levels.

“General consensus was that the final pricing of mid-swaps plus 52bp corresponded to a new issue concession of around 2bp,” he said.

Boerendans at ABN Amro said that initial price thoughts of the high 50s were a nod to volatile market circumstances, with the level of demand allowing pricing to be tightened to 52bp over.

“It was a fair price,” she said. “We are very happy with the trade.”

Germany and Austria took 44% of the bonds, the UK and Ireland 22%, France 14%, the Benelux 7%, the Nordics 6%, Switzerland 3%, Italy 2%, Asia 1%, and others 0.5%.

Banks were allocated 44%, fund managers 40%, pension funds and insurance companies 10%, central banks and governments 4%, and private banks 1%.