NordLB Luxembourg opened the US dollar covered bond market for 2018 with a $650m three year lettres de gage issue today (Tuesday), attracting more than $1bn of orders after taking a cautious approach to pricing. Bankers said takeaways for other prospective issuers are therefore limited.

The new issue is the first benchmark US dollar covered bond since 25 October, when Korea Housing Finance Corporation sold a $500m five year issue.

Following a mandate announcement yesterday, leads Citi, Goldman Sachs, JP Morgan, NordLB and TD launched the three year Reg S issue this morning with initial guidance of the mid-swaps plus 50bp area. The leads later revised guidance to the 47bp area, plus or minus 2bp will price within range, with books over $900m. The spread was ultimately fixed at 45bp and the size at $650m (EUR523m) with books in excess of $1bn.

“I’m quite impressed they went ahead with the deal early in the session this morning, given the backdrop and given that it is not a straightforward asset class nor a straightforward structure,” said a syndicate banker away from the leads. “That would suggest they were confident in the feedback they received after the mandate announcement.”

Bankers away from the leads agreed that the deal went well, citing the size of the book as being particularly impressive. However, they deemed the spread to be generous, with any benchmark comparables trading in the 20s or tighter.

“They took a very safety first approach with the 50bp area starting point, which is cheap compared to any other US dollar covered bond issuance,” said one, “but I’m still impressed by the size of the book, which is a testament to the fact that there is a lot of spread on this for a short-dated, highly rated instrument.”

The public sector Luxembourg covered bonds are rated Aa3/AAA by Moody’s and Fitch.

The last benchmark Eurodollar covered bond was a $625m three year Reg S Pfandbrief for Aareal Bank on 6 September. The German issuer’s deal was priced at 38bp and seen trading at around 27bp, mid, today.

Bankers said it would be difficult for other issuers to draw conclusions on the state of the US dollar covered bond market from the lettres de gage issue.

“You’d want to see a more standard, mortgage-backed US dollar covered bond,” said one. “This just shows that if you’re a German issuer, for example, with dollar assets to fund, you can pay a big spread and get that done.

“One more positive takeaway is that $1bn of demand for a Reg S instrument is very strong,” he added, “but most other issuers would require a spread level materially tighter than this for dollar issuance to make any sense for them, over alternative currency markets.”