An inaugural EUR500m five year covered bond for Alpha Bank last Thursday exceeded expectations, attracting broad demand due in part to its maturity and soft bullet format. The bond has not yet been purchased under CBPP3, but the ECB’s view on its eligibility could become apparent next week.

Alpha was the last of the four major Greek banks to come to the market since its reopening in October, after NBG and Eurobank issued three year conditional pass-through (CPT) benchmarks and Piraeus a privately-placed EUR500m three year.

Sources close to the deal told The CBR that Alpha held off issuing last year in order to avoid overcrowding the market.

“We thought that the window might reopen at the beginning of the new year, before the stress tests,” said one. “Looking at developments in the credit curve, and the investor demand for Greek bonds that started since November, we thought the period in mid-January to mid-February was ideal.”

He said that one reason Alpha opted for a five year was to not overcrowd the three year part of the curve, but also because it was aware that a five year deal would be more attractive to a broader range of accounts.

“In an attempt to bridge the interest from traditional covered bond investors with the typical Greek credit curve investors, we thought five years was the ideal position to be in,” he said.

Developments in the credit curve meant that Alpha could in January print a five year issue at a yield of under 3%, understood to be a “soft target” of the issuer and close to the yield paid by its peers for three year debt in October.

NBG reopened the Greek covered bond market on 10 October with a EUR750m three year priced at 2.90%, before Eurobank followed with a EUR500m three year covered bond on 24 October at 2.98%.

Greek government bond yields are now trading at their lowest levels in several years, having fallen substantially since October. The performance began on the back of reports that Greece could exit its bail-out programme this year. On 19 January, S&P upgraded the sovereign from B- to B, prompting further performance in short-dated Greek government bonds.

Following a three day European roadshow, leads Barclays, Citi, Commerzbank, JP Morgan and NatWest launched Alpha’s EUR500m no-grow five year deal with initial price thoughts of the 3% area. The leads later announced that orders had surpassed EUR2bn, and subsequently set guidance at 2.75%-2.875%, before pricing at 2.75% upon some EUR2.3bn of demand.

Another person close to the deal said it exceeded all expectations, attracting a diverse and sizeable order book.

“We had investors that were investing in covered bonds for the first time, and also for the first time we had more traditional covered bond investors buying the Alpha name, such as insurance companies – not only the typical hedge funds and so on,” he said.

Last year’s deals for NBG and Eurobank were the first sub-investment grade benchmark issues in the covered bond market. Like its compatriots’, Alpha’s covered bonds are sub-investment grade and are capped at the country ceiling, with provisional ratings of B3/B from Moody’s and Fitch. Due to their ratings, last year’s deals for NBG and Eurobank attracted a large number of non-traditional covered bond investors, with asset managers taking particularly high shares.

However, a greater range of accounts took part in Alpha’s deal, in part because many had now had sufficient time to set up lines, according to those close to the deal, but also because of the greater attractiveness of the deal’s soft bullet structure and five year tenor and because of improved sentiment around Greece.

Asset managers were allocated 47.6% of the deal, central banks and official institutions 20.4%, banks 15.4%, hedge funds 9.4% and insurers 6.2%. Accounts in the UK and Ireland took 52.2%, the Nordics 10.9%, Germany, Austria and Switzerland 10.7%, Italy 10.6%, Greece 7.4%, Iberia 3.3%, the Benelux 2.4%, and France 2%.

Alpha stated that the programme had been structured to meet requirements to be eligible for the ECB’s covered bond purchase programme. The Eurosystem did not place an order for the deal on the primary market and the ECB has not yet given an opinion on the deal’s eligibility for CBPP3.

The deal will settle on Monday, and sources suggested the ECB’s verdict may become apparent depending on whether the Eurosystem then buys the deal on the secondary market.

One measure taken by Alpha to meet the ECB’s requirements was the conversion of the programme from a conditional pass-through (CPT) to the soft bullet structure. The ECB announced in November that, as of 1 February, CPT programmes of issuers that do not have a first-best investment grade rating will be ineligible for its covered bond purchase programme – with NBG and Eurobank affected.