NordLB attracted $2.6bn of orders yesterday (Tuesday) for its second dollar benchmark covered bond, a $1bn (Eu725m) no-grow long five year public sector Pfandbrief issue that a lead banker said was already quoted 4bp tighter on the back of a lack of supply in the US market.

The new issue was priced at 49bp over mid-swaps. Leads Bank of America Merrill Lynch, Barclays, Credit Suisse, Goldman Sachs and HSBC had gone out with a price whisper of the 53bp over mid-swaps area and, after building a book approaching $2.5bn, set guidance of 50bp plus or minus 1bp.

A banker close to the deal said that most accounts were good at the ultimate 49bp spread, with over 80 accounts participating. The deal was launched after a roadshow comprising European and US legs that finished last Thursday.

The US and Canada were allocated 47% of the issue, Europe 36%, and Asia-Pacific 17%. Official institutions, sovereigns and supranationals took 43%, asset managers 40%, bank treasuries 11%, and insurance companies 6%.

Covered bond supply in dollars is less than half that of 2012. The last issue was a $2bn five year for Royal Bank of Canada in late September, but that and another RBC deal in July are the only Canadian supply this year, with the introduction of the country’s new legislative framework having curtailed 2012’s higher volumes.

Elsewhere, supply from Europe and Australia has been sporadic, with the last European deal having been a $1.5bn issue for SEB in May and arbitrage versus euros not having been as favourable as previously. The only other benchmark dollar Pfandbrief issue to have been launched since the onset of the crisis was NordLB’s debut, a $1bn three year issued in October 2012.

The banker noted said that covered bonds levels had whipsawed through the year because of the lack of liquidity, but had recently traded tighter thanks to a good bid for the dollar product.

“The transaction will be positive for liquidity going forward in the dollar covered bond space,” he added.

He said that the lack of supply and liquidity also played into NordLB’s choice of a February 2019 maturity.

“It was very important for NordLB to build up a curve and maintain a presence as they have said in the past that they are committed to the dollar market,” said the banker. “In light of that, they wanted to print an extended five year maturity.”

He said that the response to the deal meant that at the 49bp level NordLB got the curve extension between five and five and a quarter years, which is worth around 8bp on the swap curve, for free.

“NordLB has been able to demonstrate the strength of its name and its commitment to the dollar market,” he said.

The level achieved by the NordLB with its public sector Pfandbrief was wider than its equivalent levels in euros, but the banker said that it is very difficult to make such comparisons for German issuers.

“You can do that with a lot of the other Yankee type issuers, but the Pfandbrief product in Germany is supported by such a strong domestic bid and trades well through their Nordic and Australian peers in Europe,” he said, “so it is a little bit disingenuous to look at where they trade in dollars versus euros. They are just so out of whack.

“If you look at syndicated and institutionally targeted deals, the right ones to look at are the Australian and Scandinavian best in class.”