ABN Amro found some EUR1.45bn of demand with a EUR1.25bn 20 year covered bond today (Wednesday) that was aimed at yield-hungry investors, showing the market is not just open for defensive tenors. ING is set to follow with a 10 year tomorrow, its first benchmark since 2013.

Following a mandate announcement yesterday (Tuesday) afternoon, leads ABN Amro, HSBC, Natixis, UBS and UniCredit launched the deal with guidance of the mid-swaps plus 10bp area this morning. After just over an hour, the leads announced that books had surpassed EUR1bn.

The spread was subsequently set at 8bp with books over EUR1.35bn, before the size was set at EUR1.25bn with final books at EUR1.45bn, pre-reconciliation.

“It’s a good result, and shows the market isn’t just open to defensive tenors and the standard seven years,” said a syndicate banker away from the leads.

Bankers at ABN Amro’s leads said the deal was aimed at strong demand from certain accounts for long-dated paper, which, they said, has recently been in evidence in the private placement market.

The deal was ultimately priced with a coupon of 1.45% to yield 1.493%.

“It is not very often you get that much yield on a euro covered bond,” said a syndicate banker away from the leads.

The deal is only the second 20 year euro benchmark covered bond of the year, following a EUR500m issue for Cariparma on 4 January. Only two 20 year benchmarks were issued in 2017, one of them a EUR250m issue for ABN in January that was increased to EUR2.25bn in two taps later in the year.

A banker at one of the leads said the 20 year tenor, while not a defensive maturity, is not an overly “aggressive” maturity in the prevailing market conditions.

“There is a saying in the Netherlands – ‘what is unknown is unloved’,” he said. “Deals of longer than 15 years are not seen very often in this market.

“Some people might equate lower issue volumes with higher risk, but this deal is targeting a very specific investor universe, which is admittedly smaller than that active in the conventional maturities but will be happy to see a new 20 year deal coming on screens.”

The new issue is ABN Amro’s second benchmark covered bond of the year, following a EUR2bn 15 year issue that was priced at 2bp on 3 January and seen trading at around minus 1bp, mid, today. Syndicate bankers said the most appropriate comparable for the new issue is the EUR2.25bn ABN Amro January 2037s, which were seen at around 1bp, pre-announcement.

“That suggests a pick-up of around 6bp-7bp over the issuer’s curve, which is in line with what we saw yesterday,” said a syndicate banker away from the leads.

The new issue follows a EUR1.5bn five year issue for Compagnie de Financement Foncier (CFF) yesterday, which also navigated the challenging spread environment by offering a more generous pick-up over the issuer’s secondaries than had been typical in deals earlier in the year, of some 7bp, while paying a 3bp-4bp premium over extrapolated fair value based on the most recent comparables from other French issuers.

“This is the new approach – secondaries are still of use, but you need to add a couple more basis points on top,” said another syndicate banker. “The gap between old and new has changed.”

Bankers suggested that the pricing of the new issues for ABN Amro and CFF could lead to a repricing of the issuers’ curves.

However, the final spread of the new issue is understood to be the tightest ever for a 20 year euro benchmark covered year, with ABN Amro’s 20 year last April having been priced initially at 20bp and subsequently tapped at 20bp and 17bp.

ING Bank announced this morning that it has mandated Credit Suisse, Danske Bank, DZ Bank, ING, LBBW and Natixis to lead manage a 10 year euro benchmark covered bond that is expected to be launched tomorrow, according to syndicate bankers at the leads.

The deal will be ING Bank’s first benchmark covered bond since May 2013.

Syndicate bankers at the leads saw ING May 2023s at minus 17bp, mid, and also cited ABN Amro January 2024s and January 2026s, both at minus 16bp, and Rabobank May 2024s at minus 18bp and February 2028s at minus 10bp.