NN Bank launched the longest euro benchmark of the year today (Tuesday), a €500m 20 year that offered the highest coupon on a new euro benchmark in over a year, and bankers said the €1.9bn book was evidence of strong demand at the long end despite tight spreads and some rates volatility.

After announcing the mandate yesterday (Monday), Nationale-Nederlanden Bank (NN Bank) leads ABN Amro, Credit Suisse, Rabobank, Société Générale and UniCredit this morning went out with guidance of the mid-swaps plus 7bp area for a €500m no-grow 20 year soft bullet covered bond. After around three-quarters of an hour, books were reported as being over €1bn, excluding JLM interest, and after around an hour and 35 minutes, guidance was revised to 3bp+/-1bp, WPIR, on the back of €1.7bn of demand, excluding JLM interest. The new issue was ultimately priced at 2bp on the back of €1.9bn of demand, excluding JLM interest, paying a coupon of 0.375% and with a yield of 0.388%.

A syndicate banker away from the leads said the Dutch transaction was well-executed and the issuer had achieved a strong result, reflective of recent new issue trends.

“It had a nice book, so it’s a nice trade.”

A syndicate banker at one of the leads said the book is particularly impressive for a 20 year.

“It’s a really strong outcome for them,” he said. “It’s a testimony to the fact that even on the back of the rates volatility and steepening of the curve, there is still ample demand for duration from investors.

“The higher yield environment has broadened the investor scope, instead of seeing them shy away.”

The coupon of 0.375% is the highest on a new euro benchmark since Caffil sold a €750m 20 year just over a year ago, in February 2020.

Bankers at and away from the leads put fair value at around 1bp-2bp over mid-swaps – citing NN Bank’s September 2035s at flat to mid-swaps as the main comparable – implying a new issue premium of zero to 1bp.

Another banker away from the leads said that while there was little to criticise in the deal, the issuer may have been slightly generous with its guidance, as reflected by the initial rapid book development.

A syndicate banker away from the leads said that in light of the convergence of covered bond spreads – with paper from Germany, France and the Netherlands trading closely together – NN Bank could have been more aggressive in its execution strategy, starting at 6bp and potentially ending at 1bp, since despite being a smaller issuer, the Dutch bank is a regular presence in the market.

“I think investors were positively surprised to see a plus 7bp start,” he said. “However, it clearly did the trick.”

The lead banker said that while the transaction may have had the potential to be priced 1bp tighter, the issuer was conscious of the relatively volatile yield environment.

“Intraday, the yield move can be twice the spread that is on offer,” he said, “so you need to give a bit of credit to that.

“And in this super-tight environment, it’s not too bad to leave something for investors as an incentive to get into the book.”

Another lead banker said the book size would have been hit had the deal been priced 1bp tighter, and that the 2bp re-offer was itself impressive.

“Caffil priced a 15 year at 2bp two weeks ago,” he said, “and NN Bank priced a five year longer tenor flat to that re-offer, so arguably this came flat to fair value, if not 1bp inside.”

Raiffeisenlandesbank Vorarlberg is set to launch the first public Austrian covered bond of the year tomorrow (Wednesday), after announcing plans today for a €300m 15 year transaction via leads Dekabank, DZ, Erste, RBI and UniCredit.

RLB Vorarlberg’s last sub-benchmark was a €300m 15 year in November 2019.

The Mortgage Society of Finland (Hypo) is also preparing a sub-benchmark for launch in the second half of March, a €300m seven to 10 year transaction announced last week.

“It’s the perfect time for a sub-benchmark,” said a syndicate banker. “If investors are finding they’re not getting enough bonds in the big issues and the secondary market doesn’t really work, these smaller trades can actually work quite well.”