NordLB Luxembourg Covered Bond Bank (NordLB CBB) attracted over €1.25bn of demand to a €500m no-grow seven year lettres de gage deal today (Wednesday), which bankers said succeeded due its “discount” pricing versus core European paper, the lack of covered bond supply, and a supportive backdrop.

Following a mandate announcement yesterday (Tuesday), leads Deutsche, NordLB, SG, UBS and UniCredit went out with guidance of the mid-swaps plus 33bp area for the €500m no-grow seven year issue of lettres de gage (LdG) publiques. After an initial update reported books over €750m, guidance was revised to 30bp, on the back of over €1.1bn of demand, and the deal was ultimately priced at 28bp, on the back of over €1.25bn of demand.

Syndicate bankers at and away from the leads said it priced at around flat to fair value based on its outstanding June 2023 and March 2024 and paper trading at around 22bp and 24bp, respectively, and its January 2025 renewables covered bond at around 28.5bp.

“You can extrapolate fair value around the high 20s from these,” said a banker away from the leads, “meaning zero new issue concession, which is another good example of success for the market.

“It was also good to have the one and a half day execution, because this name is not always the easiest, so a good success and good maturity – no problem at all.”

He noted that a re-offer level of 28bp for seven year paper could not be found across any core European names.

NordLB CBB’s last issue, a €300m five year sub-benchmark in January, was the first renewable energy covered bond, and a lead banker noted the new seven year constituted a natural extension of its curve.

“The seven year swap rate is also around minus 19bp,” she said, “so it was offering a nice positive yield of 0.074%, and given this, we obviously saw a little bit more real money in the book versus bank treasuries.”

She added that bookbuilding was swift but as expected considering the lack of supply from the segment and the attractive re-offer spread available, which was partially attributable to it being ineligible for Eurosystem QE buying.

“Non CBPP3-eligible bonds have been sort of lagging the CBPP3-eligble bonds,” she said, “so from that perspective, it was fairly attractive on a relative value basis.”

Given some investors are unable to purchase lettres de gage, NordLB CBB opted for the two day process in order to allow accounts to refresh lines, said another lead banker.

“It’s not the simplest of transactions,” he said, “so we wanted to make sure everyone who could participate was good to go.”

The ECB is expected to announce an increase in the size of its Pandemic Emergency Purchase Programme (PEPP) after its governing council meeting tomorrow (Thursday), and the syndicate banker said the market appears to have already priced in such a move.

“Has it got a little bit ahead of itself in terms of its expectations?” he added. “We’ll have to see.”

See today’s PEPP coverage for further analysis.