Rabobank executed the largest benchmark covered bond transaction in four months yesterday (Thursday), attracting over EUR3.1bn of demand to a EUR2bn eight and 20 year deal, while VUB took the Slovak curve to 10 years and Coventry provided the latest test of sentiment towards the UK.

The Dutch bank’s EUR2bn trade is the largest since compatriot ING issued a EUR2bn single-tranche, 10 year deal on 11 February.

After the mandate was announced on Wednesday, Rabobank leads Barclays, Deutsche, Rabobank, SG and UBS yesterday morning went out with initial guidance of the 5bp over mid-swaps area for the seven year tranche and the 11bp area for the 20 year. Both tranches were priced 3bp tighter, at 2bp and 8bp over, respectively, and sized at EUR1bn on the back of demand of EUR1.85bn and EUR1.3bn good at re-offer.

“It was a fantastic transaction,” said a syndicate banker at one of the leads. “As people say, Rabobank is Rabobank.”

He said the new issue premiums paid were 2bp-3bp, with fair value for the shorter tranche around minus 0.5bp, and for the longer 5bp-6bp.

As with the choice of the eight year maturity by Aareal the previous day, Rabobank’s shorter tranche enabled it to offer a positive yield, of 9bp. However, whereas the German issuer opted for a non-standard coupon of 0.05%, the Dutch bank stuck to convention and ended up with a zero coupon.

“Investors just care about the positive yield,” said the lead banker, “and they have seen so many zero coupons in SSAs.”

He noted that the shorter dated tranche had attracted greater demand than the 20 year, in contrast with a Rabobank eight and 20 year transaction in April 2018. The new 20 year was priced with a 0.75% coupon, down from a 1.125% coupon paid by compatriot ABN Amro on a EUR750m 20 year on 17 April that attracted over EUR1.8bn of orders.

Všeobecná úverova banka (VUB) issued its second benchmark covered bond less than three months after debuting with a EUR500m five year on 19 March that was the first Slovak euro benchmark. A  EUR500m seven year debut for Slovenská sporiteľňa extended the Slovak curve on 5 June and for its new issue VUB chose a 10 year maturity.

Leads Banca IMI, DZ, Erste, LBBW and Natixis went out with initial guidance of the mid-swaps plus 35bp area for the EUR500m no-grow trade, and reported books above EUR750m, excluding JLM interest, after around an hour and 20 minutes. After two and a quarter hours guidance was revised to the 32bp area on the back of books above EUR1bn, and over EUR1.1bn of demand was good at the eventual re-offer spread of 30bp.

The deal was priced with a coupon of 0.5%, which a banker away from the leads said was “the magic number”.

“It did the trick,” he said. “The deal went really well.”

VUB’s March 2024 was quoted at 20bp over on an i-spread basis, according to pre-announcement comparables circulated by the leads, while Slovenská sporiteľňa’s June 2026s were at 16bp – VUB’s covered bonds are rated Aa2, and Slovenská sporiteľňa’s Aaa.

“Thirty was a psychological threshold where people probably pinned down theoretical fair value,” said a lead syndicate banker, “and through 30bp probably would have been too much.”

Coventry Building Society attracted over EUR1bn of demand to a EUR500m no-grow seven year euro benchmark, its first in more than two years, but bankers suggested Brexit concerns could be increasing as a factor for UK issuance.

After announcing the mandate on Wednesday, leads Danske, Lloyds, LBBW and Santander went out with initial guidance of the 25bp over mid-swaps area. After almost two hours they reported books above EUR750m, including EUR50m JLM interest, and after around three and a quarter hours the spread was fixed at 22bp on the back of over EUR1bn of demand, including EUR50m of JLM interest, with 35 orders good at re-offer. The new issue premium was put at 1bp-2bp.

“The timing of the new issue was chosen to take advantage of constructive investor appetite for UK high-grade assets and well-ahead of the current Brexit deadline in October,” said a lead manager.

However, some bankers away from the leads suggested the execution of the Coventry trade and a EUR1bn Lloyds seven year on Tuesday – which paid a 3bp-4bp new issue premium on the back of some EUR1.2bn of demand – showed UK issues to be going slower than during the “amazing window” they had previously enjoyed, in the words of one syndicate banker.

“The pricing was still very good, but the last two UK deals have gone a little slower,” he added. “It looks like Brexit is becoming a topic again.”