Bank of Ireland achieved an “encouraging return” with the first benchmark Irish covered bond in two years today (Wednesday), a EUR750m seven year issue that was over twice subscribed and deemed fairly priced despite challenging price discovery. OCBC printed a £250m five year FRN.

Bank of Ireland Mortgage Bank’s last benchmark covered bond came in October 2015, when it sold a EUR750m February 2021 issue. Only one benchmark had been issued out of Ireland since, a EUR1bn seven year for Allied Irish Bank in January 2016.

Bank of Ireland announced a mandate yesterday (Tuesday) for a seven year euro benchmark covered bond, via leads Barclays, Credit Suisse, Deutsche Bank, SG and UniCredit.

The deal was priced today at a final spread of mid-swaps minus 6bp, down from initial guidance of the mid-swaps minus 3bp area. The final book stood at over EUR1.6bn.

“The book is one of the biggest we have seen in the covered bond space since the markets became more challenging,” said a syndicate banker away from the leads. “To print a twice covered EUR750m deal is a very encouraging return.”

The strong demand for the deal was attributed partly to the deal’s rarity value.

Syndicate bankers at and away from the leads highlighted that the price discovery process was particularly difficult given the lack of Irish issuance and that the new issue extends the Irish covered bond curve by two years.

Bank of Ireland February 2021s were quoted pre-announcement at minus 18bp, mid, and May 2022s at minus 17bp. AIB February 2022s and February 2023s were both seen at minus 18bp.

However, syndicate bankers questioned the usefulness of these outstandings as comparables for the new issue.

“With no supply since 2016, it is very tough to say where fair value is based on secondary levels,” said a syndicate banker at one of Bank of Ireland’s leads. “We did not give these comparables to say ‘this is where we think the new issue should be priced’.

“It is questionable how liquid these deals are at these levels.”

Irish covered bonds have tightened by around 4bp on average this year, syndicate bankers and analysts noted, attributing the performance to improving sentiment around Ireland and the lack of new issuance.

They noted that Bank of Ireland’s outstanding covered bonds were now aligned with covered bonds from some CBPP3-eligible, core markets – such as Belgium and France.

The lead group cited comparables including BPCE October 2022s and February 2023s, both seen at minus 17bp, and BPCE September 2025s, which they noted were priced on 22 February at minus 8bp, at minus 9bp. KBC April 2021s and September 2022s were seen at minus 20bp, while its March 2026s, which were priced last Thursday at minus 8bp, were seen at around re-offer.

“If you use recent primary market prices as a guide, the pricing of today’s deal looks good,” said a syndicate banker. “To land just a bit back of French and Belgian supply, offering a pick-up of around 2bp versus recent trades, is a good result for Bank of Ireland, while it still gives investors a nice pick-up versus other triple-A CBPP3-eligible trades.”

The covered bonds of Bank of Ireland Mortgage Bank were upgraded from Aa1 to Aaa by Moody’s on 22 January. The upgrade reflected the rating agency’s expectation that the programme’s overcollateralisation (OC) will be maintained at a level commensurate with the top rating. Bank of Ireland’s covered bonds were also upgraded to AAA by DBRS last year.

Fitch said yesterday that the Bank of Ireland Group and AIB had reported solid 2017 results, confirming further improvements in key financial metrics. The rating agency upgraded the Bank of Ireland Group to BBB in November, but said yesterday that upside to its ratings is limited in the medium term given its weaker asset quality than higher-rated peers.

Bank of Ireland’s last euro benchmark, the long five year issue in October 2015, was priced at 33bp over mid-swaps. AIB’s seven year deal in January 2016 was priced at 54bp.

Following a mandate announcement yesterday, Oversea-Chinese Banking Corporation leads Barclays, BNP Paribas, Credit Suisse and OCBC priced a £250m five year FRN at 27bp over three month Libor today.

The Reg S deal is the second sterling covered bond from Singapore, following a £350m five year FRN for United Overseas Bank that was priced at 24bp over three month Libor on 21 February. Bankers noted that OCBC had been unable to match the size or spread achieved by UOB.