Erste yesterday (Thursday) sold a Eu500m 10 year mortgage Pfandbrief that an official at the issuer said was the tightest post-crisis Austrian covered bond in that part of the curve and was unaffected by concerns surrounding some Austrian names earlier in the week.

Erste Group Bank attracted orders of almost Eu2bn, comprising 85 accounts, for the Eu500m no-grow benchmark. Leads Erste, HSBC, Natixis, RBS and UniCredit began with initial price thoughts of the 10bp over mid-swaps area, before setting guidance at the 8bp area on the back of books of over Eu1bn and tightening the re-offer to 6bp thanks to the growing demand.

“At 6bp, it was the tightest priced Austrian covered bond post-crisis,” said Renee Bauer, head of long term funding at Erste. “It was a wonderful transaction.”

The sale was completed against a backdrop of volatility in some Austrian bank paper, with a widening of senior and particularly sub debt of Austrian banks that have suffered from exposure to Russia and related markets and a Swiss National Bank (SNB) decision to abandon its cap on the Swiss franc.

Bauer acknowledged that there had been an “on-off” situation earlier in the week, but said that the market had improved yesterday, and that ultimately the issues facing other Austria banks were not a factor in Erste’s execution.

“Erste Group has immaterial exposure to Russia or to Ukraine, so it is not a problem in our cover pool,” she said. “It’s mostly Austrian with a little bit of Germany in it. Russia was not a topic.”

Bauer said that the Eu500m size, which a banker had noted was smaller than some previous Erste issuance, was chosen as most appropriate for the bank’s needs.

“We don’t have a lot to do this year in terms of funding, and we don’t want to have large redemptions in any one year, so we chose the Eu500m size,” she said.

Erste had been absent from the benchmark covered bond market for almost three years, although it has been active in the senior unsecured market since then.

The issuer timed its return to the covered bond market yesterday so it could issue ahead of an imminent blackout period.

“It was either now or we would have to wait until March, as we will be in blackout soon until the end of February,” she said, “and we do have one covered bond expiring in March, a public sector bond, so we wanted to refinance that.

“We chose the 10 year because in 2011 and 2012 we did 10 year transactions, so we’ve basically filled up the 2021 and 2022 buckets in our maturity profile and only a five year or eight year plus would work,” she added. “The suggestion was to go longer due to the very low interest rates.”

With Erste’s funding target for 2015 set at Eu2bn-Eu2.5bn, Bauer added that the bank may issue another covered bond this year.

Banks were allocated 49% of the deal, central banks and official institutions 25%, fund managers 17%, private banks 5% and insurance companies and pension funds 4%. Accounts from Germany took 48%, Austria 37%, the UK and Ireland 4%, Southern Europe 3%, France 3%, the Benelux 2%, Asia 2% and Switzerland 2%