Belfius Bank placed its second covered bond issue yesterday (Monday) after having inaugurated the Belgian covered bond framework in November, pricing a Eu500m no-grow 10 year trade inside the OLO curve, something an official at the issuer said was unthinkable only a couple of months ago.

Leads Belfius, Credit Suisse, JP Morgan, Natixis and UniCredit priced the deal at 40bp mid-swaps, after having set initial price thoughts in the mid to high 40s over and revised guidance to the 45bp area.

Ellen Van Steen, head of long term funding at Belfius Bank, said that the deal was priced some 19bp inside the interpolated Belgian government bond curve.

“A couple of months ago no-one thought that it would be possible for Belgian covered bonds to price inside OLOs,” she said. “It is mostly the strength of the Belfius name, the Belgian framework and the scarcity of Belgian supply that supported this transaction.”

The deal was capped at Eu500m from the outset because the issuer has limited funding needs, she added.

The Belgian framework was inaugurated by Belfius on 19 November, when the issuer launched a Eu1.25bn transaction that attracted around Eu4bn of orders and came some 25bp over OLOs.

According to Cedric Perrier, a covered bond syndicate manager at Natixis, at 40bp over mid-swaps, the new Belfius issue was priced 15bp inside a September 2022 OLO, 57bp over the February 2023 Bund, and slightly inside the French curve.

“The pricing through the Belgian government bond curve was not surprising,” said Perrier, “but being able to price that tight to or even through the French government curve was a bit of a surprise for everyone.

“Some rare French investors told us that they liked the maturity and the name, but that it was very difficult for them to buy something inside the national benchmark. Having said that, we still have 11% of the deal allocated to French accounts, with high quality orders.”

The deal attracted Eu2.4bn of orders from 132 accounts. Germany and Austria took 52%, France 11%, Asia 9%, the Benelux 8%, Nordics 6%, the UK 5%, Switzerland 3%, and others 6%.

“The 9% allocated to Asia is mainly from central banks, which are also high quality orders,” added Perrier.

Banks were allocated 37%, asset managers 27%, insurance companies and pension funds 26%, and central banks and agencies 10%.

Perrier said that considering that Belfius had placed its first transaction, a five year deal, at 45bp over mid-swaps not long ago, selling a longer dated issue at 40bp was “rather exceptional”.

Belfius’s Van Steen said that the 10 year tenor was chosen because of high investor demand for this maturity and to diversify funding across its curve.

Perrier said that targeting the 10 year part of the curve was the right choice.

“A lot of investors, such as insurance companies and pension funds, are looking with a lot of interest to long maturities,” he said. “They don’t find much supply in that segment, so they are willing to buy even if the spread looks tight to govvies.”

He mentioned that a Caisse de Refinancement de l’Habitat’s Eu1bn 12 year deal launched on 4 January attracted Eu2.7bn of orders despite being priced almost flat to OATs, and that Belfius’ deal was only the second long dated transaction from a core jurisdiction after that.