Belfius Bank will price the first Belgian covered bond this (Monday) afternoon after attracting “multiple oversubscription” to a Eu1.25bn five year issue this morning and setting pricing some 10bp inside initial price thoughts, while KBC has mandated its debut.

Belfius’s covered bond is the first from Belgium and comes after the country’s legislative and regulatory framework was finalised last month.

Leads Belfius, Deutsche, HSBC, Natixis, Nomura and Rabobank went out with initial price thoughts of the 55bp over mid-swaps area this morning, then opened books with guidance of 45bp-50bp over mid-swaps. The spread was fixed at 45bp over mid-swaps, with orders said to have totalled some Eu4bn.

“The issuer and ourselves have been marketing the project for a couple of weeks now, so we had a good feeling the trade would work,” said a syndicate official at one of the leads. “The market is in good shape, stable to slightly better this morning.

“We saw DNB and Bank of Ireland both working well last week, and we aren’t seeing much covered bond supply these days.”

According to figures from one of the leads, the spread of 45bp over mid-swaps put Belfius at around 25bp over Belgian government bonds, with the 5.5% September 2017 OLO quoted at about 20bp over mid-swaps this morning. In the five year part of the curve French covered bonds for BPCE and Crédit Agricole were quoted at around 24bp-28bp over OATs, and at similar levels to swaps, while Dutch covered bonds for ABN Amro and ING were quoted at about 34bp over DSLs. Axa Banque Europe SCF April 2017 obligations foncières, which are backed by RMBS of Belgian residential mortgages, were quoted at 27bp over mid-swaps.

A syndicate banker away from the deal said that the initial price thoughts were too wide, particularly in light of the thorough preparations for the debut.

“I had 45bp marked as the right spread given where Axa trades, where the Belgian government trades – and how it has performed in the past couple of months – and the strong bid from France for anything with a spread to France,” he said. “It is an inaugural trade with a structure that is well-liked. And they’d done a huge roadshow.

“So to get the pricing off by that much was very strange. It’s OK to move in pricing 10bp when the spread is at 100bp over, but 10bp on a 45bp spread is more than 20%.”

He speculated that the issuer had decided to take the most defensive strategy possible to make a successful deal a “slam-dunk”.

Another banker away from the deal also said that the initial price thoughts seemed overly generous, and that last week he had been expecting a spread in the mid-40s.

“Versus govvies or implied senior levels, I suppose the starting point looked OK,” he said. “But the key thing here is that this is a triple-A Benelux covered bond and there is nothing in core Europe that offers a spread within a million miles of this.”

The bankers said that in light of the large order book the deal should perform well, with one suggesting it would go on to trade in the 30s. The bankers suggested that this should help KBC, and one said that he could see Belfius’s peer coming at 30bp over.

KBC this morning announced that it will hold investor presentations and calls ahead of its debut, starting on Thursday in Germany and running until next Tuesday in Paris. The bank has mandated Deutsche Bank, DZ Bank, Goldman Sachs, KBC and Natixis as lead managers for its inaugural issue.

Ireland’s AIB is said to be considering tapping the covered bond market soon after Bank of Ireland last Tuesday sold a Eu1bn three year deal that was the first non-government guaranteed wholesale funding for an Irish bank since 2009. AIB, which issues via AIB Mortgage Bank, is reported to have updated its covered bond programme on Friday.

Korea Housing Finance Corporation is understood to be planning a covered bond issue in early 2013 of some $500m. The state institution’s last deal was a $500m five year issue in July 2011, pooling collateral of several South Korean banks.

KHFC is included among institutions that will be eligible to issue covered bonds under legislation that has been drafted and is set to be submitted for parliamentary approval by December.