Belgium’s KBC Bank issued its first covered bond in over two years today (Wednesday), a €1bn five and a half year priced at the tightest level of a euro benchmark in three months that attracted over €3.4bn of demand, its success attributed to investors’ fear of missing out on the opportunity to buy the scarce paper.

After announcing the mandate this morning, leads BNP Paribas, DZ, ING, KBC, LBBW and UBS went out with guidance of the mid-swaps plus 12bp area for a five and a half year euro-benchmark-sized transaction. After around 50 minutes, books were reported as being over €2bn, excluding joint lead manager interest, and after around an hour and 55 minutes, guidance was revised to the 7bp area+/-1bp, WPIR, and the issue size set at €1bn, on the back of over €3.9bn of demand, excluding JLM interest. It was ultimately priced at 6bp on the back of more than €3.4bn orders at re-offer, pre-reconciliation.

The spread is the tightest on a euro benchmark since Santander priced a €1.25bn five year at 5bp over mid-swaps on 20 February.

A syndicate banker at one of the leads said KBC’s success followed the recent trend of well oversubscribed transactions from the Eurozone, with many investors feeling it is a “now or never scenario” for purchasing covered bonds in light of low supply expectations.

“You buy the stuff as it comes along or you’ll be left out in the cold for a long time,” he said. “This is probably one of the reasons why those transactions have met so little resistance with getting aggressively priced.”

Syndicate bankers at and away from the leads saw fair value for the KBC print at around 6bp based on its outstandings, implying no to minimal new issue premium, and the lead banker said the intermediate maturity of five and a half years left room for interpretation. Pre-announcement comparables circulated by the leads put KBC September 2022s at 6bp, mid, January 2023s at 5bp, March 2026s at 7bp and October 2027s at 11bp.

While some investors dropped from the book after the guidance was revised to the 7bp area +/-1bp, this did not affect the success of the transaction, according to the lead banker.

“It’s way north of €3bn for a €1bn trade,” he said, “so that’s a very decent oversubscription.”

A syndicate banker away from the leads deemed the guidance at 12bp very attractive and was therefore unsurprised by the swift momentum gained in the book.

“€2bn almost instantly materialised” he said, “so people jumped in fear of missing out, but this was to be expected – Belgian covered bonds are very rare, KBC is a super-strong name – it’s a no brainer.”

KBC’s last euro benchmark was a €750m short eight year in March 2018. And in contrast to France, which has dominated the primary market in the past two months, only three euro benchmarks have been launched out of Belgium in the past year and a half.

Noting KBC’s previous absence from the market and that the maturity is in the five year part of the curve, the syndicate banker said that “everyone and their brother” could buy the new issue.

“The syndicate will have an allocation nightmare,” he added. “Good luck with that!”

The recent reopening of the longer part of the curve has been welcomed by market participants keen to see an alternative to central bank funding tempting issuers into the market, but the syndicate banker said that the tightening of spreads is also proving propitious, as possibly evinced by KBC’s decision to approach the market with a five and a half year trade.

“Yes, it’s still more expensive than central bank funding,” he said, “but we are more towards levels where there’s not a huge pick-up, as there was when the French were coming at 40bp over.”

Tomorrow (Thursday) Axa Bank Europe SCF is set to launch a €500m no-grow long dated covered bond via BNP Paribas, Commerzbank, ING and Natixis.