Hypo Noe sold a Eu500m six year covered bond today (Tuesday) that impressed in having a new issue premium of 1bp on the back of a Eu1.2bn book, with the result deemed encouraging for an Austrian public sector-backed issue, while the impact of it being the first Austrian soft bullet was downplayed.

After a mandate announcement yesterday (Monday), Hypo Noe Gruppe Bank leads Commerzbank, DekaBank, Erste, Nykredit and UniCredit launched the Eu500m no-grow public sector issue with guidance of the 8bp over mid-swaps area this morning. The spread was later set at 5bp on the back of Eu1.2bn of orders, including Eu95m of joint lead manager interest.

Bankers said the new issue offered a premium of around 1bp, seeing Hypo Noe May 2022s – its longest dated outstandings – quoted at around 3bp, mid. They noted that Austrian covered bond curves are relatively flat, with a one year extension worth around 1bp.

“A 1bp premium is a very decent result for an Austrian public sector covered bond, especially one which is not triple-A,” said a syndicate banker away from the leads. “But then it was a no-grow with probably a sizeable amount going to the ECB, so you’d expect it to go well, especially in this supportive market.”

Hypo Noe’s public sector covered bonds are rated Aa1 by Moody’s.

The fortunes of Austrian covered bonds have improved over the last year, with sentiment towards the jurisdiction improving after the conclusion of a long running saga between Heta and its creditors. However, most new issuance had been backed by mortgages, and some doubts lingered over public sector collateral.

The last public sector benchmark from Austria, a Eu500m 10 year for Bawag PSK on 11 January, was priced in the middle of guidance, and its difficulties were in part attributed to concerns over the collateral, in contrast to the success of a mortgage-backed 10 year issue for Erste the previous day.

“It’s very good to see a deal like this go well,” said another syndicate banker. “The Austrian market has made good progress and this is another positive sign.”

Austrian covered bonds have tightened by around 4bp across the curve since the start of the year, roughly in line with the performance of German comparables.

The new issue is the first benchmark covered bond issued out of Austria to have a soft bullet structure. Hypo Noe amended the base prospectus for both its public sector and mortgage covered bond programmes last June to allow for soft bullet issuance, and in August 2016 sold a trial issuance of a Eu100m soft bullet floating rate note out of its public sector pool.

Bankers said it is unlikely the maturity structure had any impact on the pricing of the new issue, as soft bullets are the norm in many other covered bond jurisdictions.

The new issue comes after Hypo Noe completed a two week European roadshow on Friday, having announced plans to print a euro-denominated public sector covered bond with a six or eight year maturity.

It is Hypo Noe’s first benchmark covered bond since September 2014, when it sold a Eu500m seven year mortgage-backed issue.