A EUR500m 15 year Bawag PSK deal showed the long end to be open when it was more than three times subscribed today (Wednesday), while Aareal pushed out to eight years amid increasingly negative yields, and an RBC seven year highlighted high price sensitivity on the part of investors.

Bawag PSK’s EUR500m no-grow 15 year trade was the longest dated euro benchmark since ING-DiBa issued a EUR750m 20 year deal as part of a dual-tranche transaction on 16 May, since when yields have fallen to record lows. The last 10 year-plus deal was a EUR500m SCBC 10 year on 28 May that attracted only above EUR600m of orders. The Austrian’s new issue was therefore viewed as a test of whether demand remained for the very long end, which had proved particularly fruitful for issuers in periods of April and May.

After announcing the mandate on Tuesday, leads Barclays, DZ, ING, LBBW and UniCredit went out with initial guidance of the 15bp area for the EUR500m no-grow 15 year deal.

“It soon became very clear that we’d be in the position to tighten by at least 4bp,” said a syndicate banker at one of the leads, “and in the end we could do so by 5bp.”

A book update put demand above EUR1bn after around 50 minutes and guidance was revised to the 12bp area with books above EUR1.3bn after around an hour and a quarter. The spread was ultimately fixed at 10bp, with over EUR1.6bn of demand from more than 80 accounts good at re-offer.

“Is there still value at the back end of the curve? Yes,” said the lead banker. “We lost very little interest on the 5bp move – only a handful of accounts – as investors still felt it offered decent value.”

Bawag’s longest dated outstanding was a January 2027, so the main comparable was a EUR500m May 2034 issued by Erste Bank on 7 May, which the lead banker said implied fair value for the new issue of around 8bp-10bp, implying a new issue premium of a relatively limited zero to 2bp.

The evolution in yields was also raised in relation to a EUR500m no-grow eight year Aareal benchmark, with the maturity being the shortest in which the German issuer would price a new issue in positive territory.

A lead banker said the move out to eight years was reminiscent of “the generic shift at the height of QE”, with players typically active in five to seven years moving out to seven or eight years. Another lead banker said the positive yield in eight years was why the trade was recommended, and the 8 July 2027 transaction was priced at a yield of 9.1bp, while a seven year would have been priced at a yield around zero, he added.

The deal was priced in negative spread territory, at minus 1bp, following initial guidance of the plus 2bp area, after leads DekaBank, DZ, HSBC, NordLB and UniCredit built a book that peaked above EUR950m, including EUR105m joint lead manager interest, but which declined to EUR685m at re-offer.

“The book was not that large, but was extremely strong,” said the lead banker.

The absolute size of a drop in demand for a Royal Bank of Canada (RBC) seven year benchmark when it was sized at EUR1.25bn and priced at 8bp raised eyebrows, as the book fell from above EUR1.9bn to above EUR1.3bn.

Leads LBBW, Lloyds, Natixis, NatWest, RBC, Santander and UBS had gone out with initial guidance of the 12bp over mid-swaps area for a benchmark-sized seven year. Books had passed EUR1bn after an hour, and after two hours guidance was revised to the 10bp area, plus or minus 2bp, WPIR, on the back of books above EUR1.6bn.

Some bankers away from the deal suggested the issuer had pushed the envelope by tightening to 2bp at the same time as going beyond EUR1bn to EUR1.25bn.

However, a syndicate banker at one of the leads said they had been very transparent about the size parameters and where they were trying to steer the size and price. He acknowledged that the drop in the book at re-offer reflecting the size and price was “meaningful”, saying investors are getting “a bit pickier”, particularly with so much supply on offer.

“But EUR1.25bn in seven years at a really attractive level for the issuer is a great result,” he added. “We would have taken that at the outset, particularly given the market.”

Finland’s SP Mortgage Bank issued a EUR500m no-grow seen year at 9bp over mid-swaps. Leads BNP Paribas, Deutsche, LBBW and Nordea tightened pricing from the 12bp area, with more than EUR860m of orders good at re-offer.