Aareal Bank has become the latest foreign covered bond issuer to tap the sterling market and will today (Wednesday) price its inaugural issue in the currency, a £200m three year FRN that kick-starts use of what an official at the German bank said will be a strategic market for it.

Leads BNP Paribas, Deutsche Bank and HSBC have closed the order books on the deal and set the spread at 40bp over three month Libor, in line with guidance and initial price thoughts of the 40bp over area. The leads did not provide information on the size of the order book.

The deal is the third sterling benchmark covered bond in just over a week, and the third from a Pfandbrief issuer this year, after Münchener Hypothekenbank made its debut last Wednesday with a £200m three year FRN that came at 23bp over and Bayerische Landesbank sold its first public sterling covered bond since 2007 on 13 February, a £200m three year floater that was priced at 20bp over.

A syndicate banker away from the deal said the transaction was a “very interesting development” for the sterling covered bond market. Aareal is a slightly more challenging credit, he said, but at 40bp over is offering an attractive spread in comparison with some senior unsecured deals, such as a Nordea February 2016 FRN that was trading at 41bp over.

He suggested that the take-up of Aareal’s offer will partly be a function of whether investors have credit lines approved.

The transaction is Aareal Bank’s first foray into the sterling market and marks the beginning of a strategic focus on the currency, according to Alexander Kirsch, director, capital markets at Aareal Bank.

“This isn’t an opportunistic move,” he said. “We have a lot of sterling assets in our portfolio and from a risk management point of view, also taking into account the regulations we face, it makes sense to issue in a currency matching that of your assets.”

Aareal will therefore not swap the proceeds of its deal, he said. It would like to be a regular issuer in the sterling market, which in an ideal case would mean issuing a benchmark once a year.

Given the issuer’s long term and strategic intentions, it is prepared to pay up to enter the sterling market, said Kirsch, noting that although Pfandbriefe trade tighter in euros than in sterling on an after-swap basis, UK investors care strongly about the sterling covered bond curve.

The deal follows a considerable amount of marketing in the UK, said Kirsch.

“We want to sustain a presence in the sterling market, and at one point you have to start delivering,” he said.