National Bank of Greece issued the first benchmark Greek covered bond since the county’s debt crisis today (Tuesday), a “fantastic” Eu750m three year that attracted over Eu2bn and was priced a reasonable 85bp-90bp inside the sovereign and impressively close to the widest benchmark outstanding.

The deal is the first benchmark covered bond to be issued out of Greece since 2009 and the first public Greek bank bond since 2014. Following a landmark deal for the sovereign in July, it represents an important milestone in the recovery of the Greek financial sector.

The three year conditional pass-through (CPT) deal was launched this morning with initial price thoughts of the 3.25% area. Around one and a half hours later, the leads announced that books had exceeded Eu1.25bn, excluding joint lead manager interest.

Guidance was subsequently set at 3.00% plus or minus 10bp, will price within range, and the size at Eu750m, on the back of over Eu2bn of orders, excluding joint lead manager interest. The deal was ultimately re-offered at 2.90%.

Syndicate bankers said the deal was a great success given Greece’s backstory and the travails of its banking sector.

“It’s fantastic,” said a banker away from the leads. “They got Eu750m done, which is a good benchmark size, and the re-offer yield is 35bp of tightening from IPTs.

“It’s a great outcome.”

Another syndicate banker agreed.

“You will have many investors that can’t or won’t buy Greece, but for the rest, there is nothing else in the euro covered bond space that will offer this kind of yield,” he added. “It’s also a rare chance to buy a three year benchmark, which I’m sure also attracted good interest.”

As had been widely expected, the deal was priced inside the sovereign curve, reflecting the covered bonds’ higher rating and that holders of Greek covered bonds got their money back amid the crisis while holders of sovereign bonds suffered losses.

Greece April 2019 bonds were seen trading at 3.1%-3.2% and the recent August 2022s around 4.6% today. Seeing interpolated fair value for a new three year government bond at around 3.75%, bankers said the deal was priced around 85bp-90bp inside the sovereign.

“I think that the spread through govvies is pretty reasonable, if you look at other jurisdictions,” said a syndicate banker away from the leads. “In Portugal, covereds trade anywhere between 30bp-100bp through govvies depending on the name and tenor, in Italy its 50bp-70bp and in Turkey its 30bp through.

“It’s on the wider end of the average, and that’s where it should be.”

The deal offered a pick-up over the widest covered bond in the iBoxx index, the May 2021s of Turkey’s VakıfBank. These bonds were seen bid at around 2.25% this morning.

“Initial guidance at 3.25% would have been VakıfBank plus 100bp, hence, to come at 2.9% is a major success,” said Michael Spies, covered bond and SSA strategist at Citi.

Bankers said the marketing of the deal on a yield basis implied that it was aimed more at credit investors than traditional covered bond investors. The new issue will be the lowest rated euro benchmark covered bond outstanding, and as it is not investment grade it will not be included in the iBoxx Euro Covered benchmark index, meaning certain investors were unable to participate in the deal.

NBG is rated Caa3/RD/CCC+ (Moody’s/Fitch/S&P) and its covered bonds B3/B (Moody’s/Fitch).

The deal is, however, eligible for the ECB’s covered bond purchase programme (CBPP3) – the Eurosystem applies a 30% share limit per ISIN for covered bonds that are issued out of Greece and do not fulfil the programme’s credit quality step 3 rating requirement, compared to a 70% limit for covered bonds from other jurisdictions.

“The ECB share has averaged around 30% in many recent deals anyway, but it’s still a good endorsement of NBG’s trade that they got so much demand from elsewhere,” said another syndicate banker.

NBG confirmed its interest in returning to the covered bond market shortly after the Greek government issued a Eu3bn five year bond in July – the sovereign’s first international bond since April 2014. The bank then announced a series of meetings with institutional investors last Tuesday ahead of the deal. The roadshow concluded yesterday.

The new issue is only the second benchmark Greek covered bond, following NBG’s Eu1.5bn issue in September 2009. That seven year deal, issued out of a Eu10bn soft bullet programme, was partially bought back by the issuer in 2012 and matured in October 2016.

Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs, HSBC, NatWest Markets and UBS were lead managers. Commerzbank and NBG were co-leads.