KBC launched its second covered bond transaction yesterday (Thursday), a Eu750m 10 year issue that was priced inside the secondary levels of a benchmark from Belgian peer Belfius just three day earlier, according to an official at KBC, which is set to return all its LTRO borrowings.

Dirk Van Damme, head of debt capital markets, bond issues at KBC, said that the issuer was pleased with the outcome of the transaction.

“We had a great momentum despite some difficult market conditions,” he said. “We managed to reach quality investors and to raise funding at a very good level.”

Leads BNP Paribas, Commerzbank, Deutsche Bank and KBC priced the deal at 36bp over mid-swaps, after having set initial price thoughts in the 40bp over mid-swaps area and refined guidance to 38bp over.

Van Damme said that at 36bp, KBC’s issue was priced 1bp tighter than the secondary market level of a Belfius 10 year covered bond launched on Monday, and came some 5bp inside OATs.

He added that a positive outcome of Belfius’s 10 year trade three earlier before did not influence the decision of KBC to come to market yesterday with its transaction.

“One of the aims of KBC is to set up a curve,” he said. “We felt that market sentiment was favourable for long tenors, so we thought there was a good window to go for a 10 year transaction.”

Some 78 accounts participated in the deal. Germany took 60%, France 15%, the Benelux 8%, the UK 6%, Spain 3%, Asia 3%, and others 5%.

“Germany was very active, with a lot of prime quality accounts,” said Van Damme.

He said that KBC is benefiting from an intense marketing exercise it did last year before its inaugural covered bond transaction, a Eu1.25bn five year issue that attracted Eu6bn of orders on 3 December.

A syndicate banker at one of the leads said that the oversubscription for the new issue was more modest, with orders totalling Eu1.1bn, but said this was because fewer investors are able to participate in the 10 year maturity, and KBC’s was the third deal in the maturity in a week, after Belfius’s deal and a 10 year for Terra BoligKreditt on Wednesday, while CFF tapped a 10 year issue yesterday.

“But the transaction was well received, especially among real money investors,” he said.

Banks were allocated 42%, asset managers 39%, insurance companies and pension funds 13%, and others 6%.

KBC Group said today (Friday) that it has decided to repay all of the Eu8.3bn it took under the European Central Bank’s longer term refinancing operations (LTROs), Eu3.5bn of which can be repaid on the earliest LTRO repayment window next Wednesday.

“Given the substantially improved condition of the wholesale funding market and KBC’s very solid liquidity position, we decided to repay the LTRO,” said Luc Popelier, KBC Group CFO. “KBC boasts a strong retail and corporate deposit base in our core markets and our wholesale funding needs for 2013 are well advanced in terms of coverage.

“After three weeks in the new year, we have already covered a quarter of our needs.”

The ECB said today that some Eu137bn will be repaid on Wednesday from 278 counterparties.