ABN Amro tapped by Eu750m a Eu250m 20 year covered bond today (Friday) on the back of orders over Eu900m, with WL Bank also yesterday finding increased demand at the long end, on the back of a post-ECB rise in yields, and after Wednesday’s vote eased concerns around Dutch paper.

The Dutch bank’s original Eu250m January 2037 issue was sold on 4 January as part of a dual tranche offering alongside a Eu2bn 15 year, with the sub-benchmark tranche added in response to reverse enquires received during the execution process.

This morning, leads ABN Amro and BayernLB reopened the deal with the spread fixed at 20bp over mid-swaps – the spread at which the original issue was priced. The size of the tap was ultimately set at Eu750m, taking the deal to Eu1bn, on the back of over Eu900m of orders.

“It was a very strong response,” said a syndicate banker at one of the leads.

The deal has a coupon of 1.125%, and the tap a yield of 1.578%.

Bankers said the deal offered a premium of 4bp, seeing the original deal trading at 16bp, mid, pre-announcement. They said this was relatively slim, given the 20 year maturity, which they said was evidence than investors are comfortable with Dutch assets.

The win for prime minister Mark Rutte’s Liberal Party in the Dutch general election on Wednesday, and the underperformance of Geert Wilder’s Freedom Party, prompted a market rally yesterday (Thursday) and put an end to uncertainty that has affected Dutch paper this year, although the chances of Wilder’s EU-sceptic, far right party forming a government were always deemed slim.

“It is not surprising that the Dutch names are not wasting any time before returning to the market,” said a syndicate banker. “Now that the election result has put to bed investors’ worries about the Netherlands, I think we will probably start to see more activity from Dutch names.”

The last benchmark covered bond from the Netherlands was a Eu500m 10 year for Van Lanschot on 8 February – the only Dutch benchmark this year besides ABN Amro’s dual tranche offering in January.

Dutch covered bond spreads underperformed relative to most other jurisdictions in the run-up to the election, but are now expected to tighten over the coming weeks.

ABN’s new long-dated tap comes after Westfälische Landschaft Bodenkreditbank (WL Bank) yesterday sold a Eu250m 20 year public sector Pfandbrief. The deal was launched with the spread already fixed at 5bp over mid-swaps, and was priced with a coupon of 1.375% to yield 1.46%. The size of the order book was not disclosed.

“As the issuer only had Eu250m needs, we marketed the deal at the re-offer spread level, exactly as ABN has done today,” said a syndicate banker at one of lead Deutsche, NordLB and UniCredit. “There’s a fairly limited investor base that you are targeting with these maturities, and the process is a little less standard in that you know more or less where the deal will clear.”

Such long dated supply has been scarce this year, and only one benchmark covered bond with a maturity of 20 years or longer has been issued so far, a Eu500m February 2037 for Crédit Agricole on 25 January. The French bank’s deal was tapped by Eu400m on 6 February.

The lead syndicate official said that WL Bank launched its trade partly in response to reverse enquires, and said demand for duration has increased notably of late.

“We have had good reverse enquiries for a number of names in this part of the curve,” he said. “Obviously, with the swap rates increasing post-ECB, we are starting to see interesting yield triggers that caught the attention of some investors.”

The 20 year swap rate was seen this morning at 1.41%, having risen by around 10bp since an ECB meeting on Thursday of last week. Although the ECB announced no changes to its policy or QE programme, a less dovish statement from ECB president Mario Draghi was interpreted as foreshadowing a change in the central bank’s forward guidance, prompted a steepening of the yield curve.

However, bankers expect that 20 year issuance will remain relatively limited and mostly in sub-benchmark format, given a limited investor base.

WL Bank’s sub-benchmark issue came after it was announced on Wednesday of last week (8 March) that negotiations will commence to merge the bank with DG Hypothekenbank. The two Pfandbrief issuers are both members of the DZ Bank Group, following a merger last year of their parents, DZ Bank and WGZ Bank.

Wolfgang Kirsch, CEO of DZ Bank, said when announcing the moves that the two lenders have been asked to enter merger negations to address overlaps in the group’s real estate finance business.

The merger will probably be completed in 2018, according to analysts, and the merged entity is expected to become Germany’s biggest property lender and largest covered bond issuer, in terms of volumes outstanding.

Based on figures from the fourth quarter of 2016, analysts estimate the merged issuer would have Eu26.1bn of mortgage-backed Pfandbriefe outstanding and a mortgage cover pool of Eu30.4bn, and Eu18.5bn of public sector Pfandbriefe outstanding with a public sector cover pool of Eu21.7bn

The covered bonds of each are rated AAA by Standard & Poor’s, and both issuers are now rated AA-.

“Given the high issuer and covered bond ratings and cover pool compositions, it should barely surprise that both issuers trade a very tight range to each other and are among the richest trading bonds in the Pfandbrief universe,” added Michael Spies, covered bond and SSA strategist at Citi. “Hence, the probable merger should not change this.”

Photo: Prime Minister Rutte/Flickr