De Volksbank attracted a peak €1.7bn-plus of orders, falling to €1.1bn at re-offer, for a €500m no-grow 20 year deal offering a 0.125% coupon today (Wednesday), following a back-up in yields, and Bawag PSK is expected to follow it into the long end tomorrow with a €500m 15 year.

After announcing the mandate yesterday (Tuesday), de Volksbank leads BNP Paribas, DZ, NatWest, Rabobank and UniCredit this morning went out with guidance of the mid-swaps plus 12bp area for a €500m will-not-grow 20 year transaction. After around 55 minutes, books were reported as being over €1bn, excluding joint lead manager interest, and after around an hour and 40 minutes, the guidance was revised to 8bp+/-1bp, WPIR, on the back of over €1.7bn demand, including €60m JLM interest.

The spread was ultimately set at 7bp, on the back of over €1.5bn of demand, including €60m JLM interest. The final book at re-offer for the Dutch covered bond was over €1.1bn, including €60m JLM interest.

The transaction was ultimately successful, according to a syndicate banker away from the leads, who noted that while the final book was “not massive”, this is typical for such an extended maturity.

“For a 20 year, you never have a €2bn book that you can normally get at 10 years,” he said.

The deal is the first euro benchmark to have been launched since rates backed up in the wake of news of a promising Covid-19 vaccine on Monday afternoon European time, with 20 years backing up as much as 20bp.

The 0.174% yield on de Volksbank’s issue is the highest on a euro benchmark since a €500m 15 year Axa Home Loan SFH deal yielding 0.222% on 17 June.

A lead banker said the coupon of one-eighth contributed to the appeal of de Volksbank’s new issue, although the syndicate banker away from the leads attributed its success primarily to the persistent supply-demand imbalance.

“The market is extremely squeezed,” he said, “and there’s no supply, with the prospect of supply also being low.

“The fact that, depending on where you look at the curve, rates are around 5bp-10bp higher helps,” he added, “but it doesn’t change the picture that we will remain at extremely low yield levels.”

He put fair value at 7bp, implying zero new issue premium, based on the most recent Dutch comparable, a €500m 15 year NN Bank deal issued on 16 September, at 5bp, and adding 2bp for the 15-20 year curve.

The lead banker put fair value at 8bp, implying minus 1bp of new issue premium.

“It’s difficult to assess with a name like this as they only have bonds up to 2031,” he added, “and the curve being super-flat, but at 7bp, they are definitely through fair value.”

The 5bp move from guidance to pricing proved too bullish for some investors, as the lead banker highlighted some €200m orders dropped from the book after the first pricing revision, with around €600m ultimately dropping from when books peaked at over €1.7bn.

“In the end it was more than comfortably subscribed,” he said, “the issuer enjoyed it, it was a good sell, so from that end there were no complaints.”

Scarcity value contributed to its success to a minor extent, he added, given that de Volksbank had not issued since January 2019.

“This is quite some time,” he said, “and this, combined with it being an established name – people like them – and the fact we are finding ourselves with one-eighth coupon, made it very nice.”

Bawag PSK is set to issue a €500m no-grow 15 year mortgage covered bond tomorrow (Thursday), after announcing the mandate today.

The new issue will be its third euro benchmark this year, following a €500m eight year in January and a €750m 10 year in September, the latter being the last euro benchmark from Austria.

A syndicate banker away from the leads said comparable 2034 paper was trading at around 3bp over mid-swaps, and UniCredit Bank Austria September 2035s were at 4bp.

“I wouldn’t be surprised if they start in the context of 7bp-8bp,” he said, “and try to price as close as possible to 3bp or even though.”

Like de Volksbank’s new issue today, the new Austrian 15 year is likely to price with a positive yield, he added.

“At the margin, it might be more worth having a positive yield with a 15 year than a 20 year,” he said, “but that’s just a gut feeling.”

DekaBank, Deutsche, NordLB, RBI and UniCredit have the mandate.