AIB sold the first benchmark covered bond from the periphery in seven weeks today (Monday), attracting Eu1.4bn of orders for a Eu750m five year deal that bankers said would likely encourage non-core names to consider tapping the market now the Greek crisis has subsided.

The new Irish issue is the first from the periphery since a Eu750m five year issue from Banco Sabadell on 29 May, and made AIB the first issuer to test demand for peripheral covered bond paper since the euro market reopened on the back of a positive outcome to Greek negotiations last week, with seven benchmarks having hit the market from last Tuesday to Friday.

AIB Mortgage Bank leads Commerzbank, JP Morgan, Lloyds, Natixis and UBS priced the Eu750m five year issue at 22bp over mid-swaps, building a final order book of around Eu1.4bn. The deal was launched with initial price thoughts of the mid to high 20s, before guidance was set at the 25bp area, on the back of books of around Eu1bn.

“This is a very good result,” said a syndicate official at one of the leads. “Eu750m is the size we were looking for, and that tightening from IPTs to the re-offer shows some good price leverage.

“This size and spread is in line with our best case outcome.”

Syndicate officials away from the leads also said the deal had gone well, and added that they expect other peripheral issuers to be encouraged to come to the market by AIB’s result.

“This deal is a good sign,” said one. “It’s more of what we saw last week, and this has shown the demand is there even for the less strong credits. This week looks like a relatively good window, if others are looking.”

Another syndicate official agreed, adding that he expected supply to continue through the summer.

“We have a constructive market right now,” he said. “I think we will see a few more deals this week, from across the board, as issuers try and sneak a few in, as we get to what is traditionally the quietest couple of weeks in the year at the end of July.”

Syndicate officials away from the leads said AIB’s deal offered a 5bp-6bp new issue premium, seeing AIB’s March 2021s at 17bp, bid.

The deal also showed that the five year maturity remains the sweet spot, syndicate officials said, noting that five of last week’s seven euro deals featured the tenor, with one six year and one eight year.

“Investors are still sceptical about going too long,” said one. “Five years is where the depth is.”

Standard & Poor’s upgraded AIB’s covered bonds from A+ to AA- on 10 July after the issuer published a voluntary public commitment to maintain overcollateralisation of at least 44%. The lead syndicate official said that, after discussions with investors, it appeared that the impact of the upgrade had already been priced in, but noted that bank treasuries could now look at AIB paper as a Level 1B LCR asset.

AIB’s most recent euro benchmark was a Eu750m seven year issue that was priced at 27bp over mid-swaps in January. The last Irish benchmark was a Eu1bn seven year issue for Bank of Ireland Mortgage Bank at 5bp over mid-swaps on 29 April.