Aareal Bank is out with initial price thoughts for its first public sterling covered bond and the third issue in the currency in a week, with the 40bp over area for a £200m (Eu235m) three year FRN the largest spread for a new issue in the currency this year but not cheap on a relative value basis, according to a lead syndicate banker.

BNP Paribas, Deutsche Bank and HSBC are lead managing the sale of the mortgage Pfandbrief, which is expected to be tomorrow’s (Wednesday’s) business, according to a syndicate banker on the deal.

He said that it has gotten off to a slow start, but that this is not surprising given that the issuer is not a familiar credit, and that accounts are also looking into matters such as the Fitch-only rating. The bonds are expected to be rated AAA by Fitch.

“A lot of people are looking and we hope the interest will materialise,” he said.

At 40bp over the issuer is paying up compared with where it would fund in three years in euros, he said, but the issuer has sterling funding needs and would also not necessarily do a comparable three year deal in euros.

The equivalent after swaps euro level is around 9bp over six month Euribor, he said, while an outstanding February 2016 Aareal issue is trading at around 3bp through.

Aareal’s deal comes after sterling covered bonds for France’s CM-CIC Home Loan SFH and Germany’s Münchener Hypothekenbank on 16 and 17 April, respectively. CM-CIC re-offered a £250m three year floating rate note at 30bp over three month Libor and MüHyp sold a £200m mortgage Pfandbrief at 23bp over.

A syndicate banker away from the deal said that the issuer was paying up compared with where the recent transactions came.

“It looks attractive for a three year triple-A sterling FRN,” she said. “Maybe they are paying up because it is not so well followed.”

ANZ Banking Group sold a £500m three year at 27bp over in January and that is trading at around 21bp over, she said, while a £250m Stadshypotek February 2016 is at 22bp over after having been priced at 23bp over.

The lead syndicate banker defended the level, saying it made sense based on relative value between Aareal Bank and MüHyp in fixed rate euros, where Aareal trades around 14bp back of MüHyp in equivalent maturities.

“There are a few reasons why optically it may look cheap versus MüHyp but the differential is clear,” he said.