Belfius sold its fourth benchmark covered bond yesterday (Tuesday), a Eu500m no-grow five year issue that a lead syndicate official said helped illustrate continued strong demand for high quality assets but also “a very clear correlation” between deal size and new issue premiums.

The Belgian bank priced the mortgage-backed Pandbrieven issue at 13bp over mid-swaps via leads Bank of America Merrill Lynch, Belfius, Crédit Agricole, Commerzbank and Nordea. Around Eu750m of orders were placed for the deal, which was initially marketed in the mid-teens and then at 13bp-15bp over (will price in range).

Some 52 accounts participated, according to a lead syndicate official. Germany took 41%, southern Europe 13%, the Nordics 12%, the UK and Ireland 12%, France 8%, the Benelux 8%, Austria and Switzerland 5%, and other Europe 1%. Banks took the largest share of the transaction, buying 55%, followed by asset managers with 34%, central banks 7%, and pension funds and insurance companies 4%.

Ellen Van Steen, head of long term funding at Belfius Bank, said that the five year maturity fit the issuer’s redemption profile and was also attractive for investors.

“The deal was supported by good investor reception,” she said. “We were able to gather interests from a broadening investor base, which is also a positive outcome, as Belfius Bank aims at diversification of its funding sources and investors.

“Given our funding needs the issue size was limited at Eu500m, which allowed us pricing at the tight end of the spread guidance.”

The lead syndicate official said that Belfius’ interpolated secondary market curve put fair value for a new five year issue at 11bp over, with its November 2017s seen at 6bp over and June 2020s at 17bp over before marketing for the new issue began.

He said that a discernible new issue premium (NIP) was considered necessary at the initial price thoughts (IPT) stage to gain traction on what was a low spread transaction, but that the demand and capped deal size allowed the leads to tighten the spread and reduce the new issue concession.

Substantial demand remains for high quality assets, he said, but larger deal sizes necessitate a larger premium.

“There is a very clear correlation in this market for names trading at very tight spreads between the capacity you’re able to achieve and the new issue premium you’re offering,” he said.