Dexia Kommunalbank Deutschland made a well-trailed return to the benchmark covered bond market yesterday (Tuesday) with a more than thrice-subscribed Eu500m public sector Pfandbrief, and an official at the issuer said it was surprised by the strength of demand.

The deal, a Eu500m no-grow, was priced at 27bp over mid-swaps on the back of more than Eu1.8bn of orders from 85 accounts. Barclays, Commerzbank, DZ Bank and HSBC were lead managers.

The transaction was priced almost exactly one month after the issuer announced a mandate for a roadshow, which took place in the week of 19 May, and came on schedule.

“Due to the Easter holidays and the roadshow, the plan was to launch a deal the first week of June,” said Patrik Krämer, head of treasury at Dexia Kommunalbank Deutschland (DKD).

In other respects the deal did not go as expected, albeit positively so.

“We were very surprised by the high demand,” Krämer told The Covered Bond Report. “It was relatively difficult to know where we would be able to price and we are very happy with the result.”

A syndicate official at one of the leads said the deal “went fabulously”, although healthy demand had admittedly been expected.

At 27bp over, DKD’s deal came at the wide end of the German Pfandbrief market but with a relatively limited new issue premium of around 2bp, although this is difficult to calculate given few valuable outstandings, according to the syndicate banker.

“There’s a hunt for anything that pays a bit of spread and that hunger is driving demand,” said the syndicate official. “This was a well prepared deal and pleasing result.”

DKD’s public sector Pfandbriefe are rated A+ by Standard & Poor’s.

Germany and Austria took 87%, the Nordics 7%, Switzerland 3%, and others 3%. Funds were allocated 49%, banks 43%, insurance companies 5%, central banks 2%, and retail accounts 1%.

DKD is part of the Dexia Group, which was bailed out by the Belgian and French governments, and is being wound down to comply with conditions attached to the rescue of the group.

It decided to return to the benchmark covered bond market, which it last tapped for a new issue in May 2011, to replace maturing Pfandbriefe, and plans to be a regular issuer.

“We have covered bond redemptions coming up and in the context of our asset-liability mismatch we wanted to use the positive market environment,” said Krämer. “We used to be an active Pfandbrief issuer so it was easy to decide to turn to the product again.”

An analyst noted that some Eu2bn of redemptions in May and June will have supported yesterday’s transaction.

Krämer said that the issuer plans to raise Eu500m-Eu1.5bn of funding annually via benchmark covered bonds, subject to market conditions, which would mean between one and three issues a year.