Hypo Landesbank Vorarlberg sold a Eu300m 10 year mortgage Pfandbrief today (Wednesday), with bankers suggesting the sub-benchmark size helped the issuer tighten the spread closer to levels of its larger peers. The deal comes after Belfius tapped the long end yesterday.

Austria’s Vorarlberger Landes- und Hypothekenbank (Hypo Landesbank Vorarlberg) sold the 10 year mortgage Pfandbrief at mid-swaps plus 7bp, after leads DZ Bank, LBBW and RBS opened with initial price thoughts in the 10bp area and set guidance at the 8bp area.

A syndicate official away from the leads noted that Hypo Landesbank Vorarlberg’s only outstanding covered bond, an April 2020, was trading at mid-swaps minus 1bp bid.

“It’s only one reference point though, so you can’t necessarily bench everything off of that,” he added.

He suggested that the deal’s sub-benchmark size would have helped the leads to push the pricing tighter.

“I think if they’d done a benchmark they’d probably have had to pay a bit more,” he said. “It’s a good outcome in the end, but that’s to be expected.”

Another syndicate official away from the leads agreed, noting the trade came at a limited size and from a name in the undersupplied German-speaking region.

“In other, more testing markets people would be a bit more demanding for sub-benchmark size,” he added.

He said that the deal appeared to have gone in line with expectations, noting that an Erste 10 year issue, priced last week at 6bp, is now trading 1bp tighter.

“The name trades a couple of basis points back of Erste and UniCredit Bank Austria, so it looks OK,” he said.

A syndicate official at one of the leads said the issuer acknowledged the deal’s sub-benchmark size “by leaving one basis point on the table” compared with Erste, adding that some investors had said they expected a larger pick-up, with the deal to be priced in the context of 8bp.

Some investors limited their bids at 8bp, but many dropped the limits as the deal progressed, he said.

“People just had to succumb to pressure,” he said. “It’s an issuer’s market. Who knows when the next one will come, in particular from this issuer?”

“I think if you had really pushed this to the limit, you could have priced at 6bp as well,” he added, “but in order to at least leave some logic to this business we agreed very quickly with the issuer that a gap of 1bp was reasonable.”

Belgium’s Belfius Bank priced its Eu1bn 10 year deal at 7bp over mid-swaps yesterday (Tuesday) on the back of Eu1.8bn of demand, after leads Belfius, Citi, Crédit Agricole, Deutsche and LBBW had announced the deal on Monday and yesterday morning gone out with initial price thoughts of 10bp-12bp, which were revised to guidance of the 9bp area.

Ellen Van Steen, head of long term funding at Belfius, said that Belfius decided to approach the market with the 10 year deal this week given favourable market conditions and good interest from investors for covered bonds with longer maturities.

“Besides the strong market interest for these maturities, the 10 year tenor was also chosen because the maturity fits well the natural hedging profile of the cover pool,” she added.

Van Steen noted that the transaction was priced at the tight end of guidance.

“Belfius is satisfied with the price achieved and of the size of the transaction, which were in line with its expectations,” she said. “This demonstrates again the good appetite for the Belfius name and the Belgian covered bond format.”

Central banks and official institutions were allocated 33%, while CBPP3 buying is understood to have been included a 25% share for “other Europe” in distribution statistics. Meanwhile, asset managers took 29%, banks and private banks 25%, insurance companies 11%, and others 2%. Germany and Austria receive the highest share, at 43%, while France was allocated 8%, Asia 6%, the UK 6%, the Nordics 4%, the Benelux 3%, Switzerland 3%, and Italy 2%.