Rabobank issued the tightest non-German EUR1bn-plus covered bond in the 10 year space since the crisis today (Tuesday), a “clinical” EUR1.25bn deal that attracted over EUR1.7bn of orders and builds its curve with a tenor that, while not investors’ favourite, is now the year’s most tapped.

The Netherlands’ Rabobank sold its first benchmark covered bonds last May, in a dual tranche debut comprising a EUR1.5bn seven year and a EUR1bn 15 year.

“Everyone has known almost for a year already that Rabobank were probably going to do a 10 year covered bond,” said a syndicate banker away from the leads. “Strategically, it was the right thing to do to build a curve with a 10 year tenor, and even though it isn’t the most popular tenor with investors, it has gone very well.”

Leads Credit Suisse, HSBC, Rabobank and UniCredit launched the deal with guidance of the mid-swaps minus 7bp area. After just over one hour, orders had exceeded EUR1.25bn.

The spread was subsequently set at minus 10bp, with books in excess of EUR1.6bn. The size was later set at EUR1.25bn with the final book at over EUR1.7bn, including EUR30m joint lead manager interest.

A banker at one of the leads said that the fixing of the spread without an intermediate step of revised guidance reflects the “clinical” approach taken by Rabobank in accessing the market.

“They wanted to give investors something tangible to consider,” he said.

The deal is understood to be the tightest non-German covered bond with a size of EUR1bn or more and a tenor of 10 years or longer since the financial crisis. The only non-German 10 year euro benchmark to have been priced tighter post-crisis is a EUR750m issue for BNP Paribas that was priced in April 2015 at minus 11bp.

“That is a real testament to Rabo,” said the lead banker. “It’s a tight spread, a new issue premium at the lower end, and another clinically executed transaction in typical Rabo style.

“It’s their second visit to the market, albeit their third tranche, and they’ve created a very, very solid platform for ongoing covered bond issuance.”

Today’s new issue is the tenth new euro benchmark covered bond in the 10 year part of the curve since the turn of the year, making it the most heavily used maturity, with EUR8bn of supply.

Although the intermediate part of the curve is deemed by many syndicate bankers to be the sweet spot in terms of investor appetite, successive 10 year trades have mostly found solid demand – including a EUR500m cédulas for Bankinter and a EUR750m issue for La Banque Postale yesterday (Monday) – allowing issuers to secure highly attractive spreads at the long end and take advantage of a recent rise in rates.

“If you asked 100 investors right now, what would be their preference out of any maturity, I think literally none would choose a 10 year,” said a syndicate banker away from the leads. “But overall demand is still very high compared to supply and the market is quite supportive.

“That, combined with the fact that Rabobank is such a fantastically strong issuer that has only issued two covered bonds before, meant there were a lot of factors assuring that today’s deal will go well.”

The deal is the largest 10 year covered bond of the year so far, and bankers noted the size of the book was at the upper end of the range seen in recent long dated trades.

“I’ve liked 10 years for a long time – clearly, they work,” said a syndicate banker at one of Rabobank’s leads.

The deal offered a new issue premium of 2bp-3bp, according to bankers at and away from the leads, who saw Rabobank May 2024s at around minus 20bp, mid, and May 2032s at around minus 5bp.

Rabobank’s inaugural deals were priced with a small premium versus the curve of ABN Amro, then the tightest trading Dutch covered bond issuer. Rabobank’s spreads have since tightened to trade 3bp-4bp inside ABN Amro at some points in the curve, with ABN Amro January 2032s seen at minus 1bp, mid, for example.

Some said this reflects that Rabobank – which used to be rated triple-A – is the highest rated Dutch bank, currently Aa2/A+/AA-/AA (Moody’s/S&P/Fitch/DBRS).

However, another syndicate banker said the differential between the curves reflects only that ABN Amro has much more paper outstanding, and suggested that a new ABN Amro 10 year would also be priced at 10bp through mid-swaps today.

ABN Amro’s last benchmark covered bond with a 10 year maturity was a EUR1.25bn January 2026 priced in January 2016, which was seen at minus 19bp, mid. Bankers noted the deal was trading particularly tight and that the Dutch curve is relatively flat up to eight years.

Deutsche Hypothekenbank announced yesterday a mandate for BayernLB, Commerzbank, Crédit Agricole, DZ and NordLB to lead manage a EUR250m no-grow tap of its EUR500m April 2022 mortgage Pfandbrief.

The deal was reopened this morning with guidance of the mid-swaps minus 17bp area. After around one hour and 10 minutes, the spread was set at minus 18bp on the back of EUR285m of orders, including EUR30m joint lead manager interest. The book closed at EUR300m, including EUR30m JLM interest.

The original deal was priced in April 2015 at mid-swaps minus 14bp, and seen trading at around minus 18bp-17bp, mid, pre-announcement.