Ireland’s AIB Mortgage Bank was well received in the covered bond market for the second time in two months today (Tuesday), and will price a Eu500m three and a half year issue flat to through its curve, according to the leads, who tightened the spread by 15bp from IPTs.

AIB headquarters, Ballsbridge, Dublin

The deal came slightly less than two months after AIB’s last transaction, a Eu500m three year covered bond launched on 29 November that marked the issuer’s comeback to the benchmark covered bond market after five years of absence. Irish banks had been shut out of the non-government guaranteed market for three of those years before Bank of Ireland Mortgage Bank reopened the covered bond market in the middle of November, with a Eu1bn three year.

AIB’s November deal, an Irish Asset Covered Security (ACS) maturing in December 2015, was priced at 270bp over mid-swaps, the tight end of guidance of the 280bp over area, and according to bankers has since tightened considerably.

A syndicate banker away from today’s new AIB issue suggested that bringing Irish supply to the market made sense in light of how well other non-core issuance has fared so far this year, with “the Italians flying out the door”, for example.

“It was relatively well flagged that something would come,” he said.

Speaking to The Covered Bond Report after AIB’s November transaction, Seán Cremen, head of wholesale treasury, Allied Irish Banks, said that the issuer would be aiming to rebuild its curve “with a series of well placed, appropriately structured transactions over a period of time”.

Leads Barclays, Deutsche Bank, Morgan Stanley and UBS went out this morning with guidance of 190bp-195bp over mid-swaps on the issuer’s three-and-a-half year ACS, and gathered more than Eu2bn of orders to fix the re-offer spread at 185bp over for a Eu500m deal. Initial price thoughts were set at the 200bp over area. A lead syndicate banker said that the process started with a 10bp new issue premium on offer, but that in the end the deal came flat to through secondaries.

“That’s by looking at the December 2015s and June 2017s and building a curve around that,” he said.

A syndicate banker away from the leads said that starting with a “nice round number” at 200bp and tightening the spread significantly thereafter was the right move.

“It would allow the bond to perform well in secondary as well, which is very important for them,” he said.

He said AIB’s outstanding December 2015 issue was quoted at around 180bp over in the secondary market yesterday (Monday).

“So the new issue coming at 185bp is a good result,” he said.

A lead syndicate official said that the issuer did not want to print a larger deal although demand would have supported this, and that it was positive to see the same number of accounts in the order book as for AIB’s Eu500m three year in November.

“The deal was fantastic,” he said. “Great pricing, and a great reception. It’s reassuring that the spread rally continues to be based on the same number of accounts.”

More than 170 accounts were represented in the order book for AIB’s December 2015 issue, according to the issuer. That deal featured a 3.125% coupon whereas today’s may very well come with a coupon of 2.625%, according to a lead syndicate banker. Real money rather than bank treasuries drove demand, he added, with the former attracted to the large spread.

Another lead syndicate official said that the choice of maturity, which a banker away from the deal queried for being fairly close to that of AIB’s previous issue, was down to considerations about net interest margins.

With December 2015 and June 2017 issues already outstanding, today’s benchmark fits smoothly into AIB’s curve, he added, and will hopefully revive secondary market activity in the June 2017s.

The issuer’s December 2015 ACS served as the main pricing reference, according to the lead syndicate official, which he said traded around 165bp-170bp over and meant that the new issue was coming flat to through the curve, depending in part on where the illiquid June 2017s are seen in the secondary market.

Other syndicate officials away from the leads appeared to deem the pricing appropriate, although assessments of new issue premiums varied somewhat. One syndicate banker away from the leads put AIB’s December 2015 ACS secondary market level at 170bp over and valued the extension to a July 2016 maturity at 3bp-5bp to put the new issue concession in the high single-digits, but said the pricing was fair.

“It’s interesting to see them back so soon, but there’s no harm in that,” he said. “They’re doing the right thing on pricing – it’s very investor friendly.”

Another said the new issue concession was in the realm of 5bp based on mid-market levels.