National Australia Bank built a book of almost Eu2bn for a Eu1bn 12 year covered bond today (Thursday), with bankers noting that the high level of demand for a deal outside the remit of CBPP3 demonstrated investor’s interest in long-dated bonds in the ultra-low yield environment.

Leads Crédit Agricole, HSBC, NAB and UBS went out with guidance of mid-swaps plus the low 20s for a benchmark-sized transaction and after taking indications of interest of over Eu1.25bn set price guidance at the 20bp area. The deal was ultimately re-offered at 18bp over on the back of a book approaching Eu2bn on an unreconciled basis and including some lead manager interest, with some 80 investors involved.

“This was certainly a successful trade,” said a syndicate official away from the leads.

The deal is the longest euro benchmark covered bond since Santander sold a Eu1.25bn 20 year as part of a Eu3bn two tranche issue in November, but comes after bankers said that deals for the likes of Erste and Belfius in the past two weeks had proved encouraging about the strength of demand for long-dated paper.

The mandate for NAB’s transaction was announced yesterday (Wednesday) afternoon as a long-dated issue, and according to a syndicate official at one of NAB’s leads, it was initially undecided whether a 10 or 12 year maturity would be chosen. He said that although feedback from some accounts on the idea of a 12 year was positive, it was not clear just how successful a trade might be.

“But we went for it and it paid off,” he added. “At the end of the day we got a very, very good result, and without traction from the Eurosystem.

“To get such an outcome in 12 years was not at all obvious, even if we have seen a better bid for duration.”

The deal offered a 0.875% coupon [corrected from 1%], which compares with, for example, 0.75% for a Eu1bn 10 year from Belfius on Monday of last week (3 February), while the new issue yielded 0.983%.

“It’s one of the patterns these days that one definitely has to offer at least some sort of outright yield,” said a banker away from the leads. “It’s still miserable in terms of spread, of course, but at least it’s better than something that is yielding zero.”

Another noted how supportive the ECB’s QE is for longer durations.

“We have seen a number of 10 year trades out of core Europe,” he said. “With 12 year there was a bit of differentiation possible. On the Aussie curve there are no 2027 maturities outstanding.

“Plus the issuer pays up less for the extension on the duration.”

Bankers noted that, at 18bp over mid-swaps, the 12 year deal came just 4bp wider than a Eu1.25bn seven year for Westpac on 9 January, which was the last Australian benchmark.

Syndicate officials at and away from the leads put the new issue premium at 2bp-3bp, with June 2025 NAB paper – a Eu750m 12 year it issued in May 2013 – trading at 10.5bp-11bp over and the curve to February 2027 worth 4bp-5bp.