A €500m no-grow 10 year covered bond from NIBC today (Tuesday) attracted peak demand of around €1.75bn and was ultimately priced 1bp inside fair value, with its 9bp over mid-swaps spread proving as enticing as expected amid a shortage of yieldy paper and declining CPT issuance.

After announcing the mandate yesterday (Monday) afternoon, leads DekaBank, DZ, ING, LBBW and NatWest this morning went out with initial guidance of the mid-swaps plus 14bp area for the €500m no-grow 10 year conditional pass-through (CPT) covered bond. They reported books above €1bn, excluding joint lead manager interest, after an hour and 10 minutes, and an hour later revised guidance to 10bp+/-1bp, WPIR, on the back of orders above €1.5bn, excluding JLM interest. The spread was fixed at 9bp with orders above €1.75bn, excluding JLM interest and pre-reconciliation, and the final book stood at €1.35bn, excluding JLM interest.

The level of demand was in line with expectations that the new issue would prove enticing for investors.

“Frankly, when I heard it was NIBC with a CPT, with what is probably the highest spread in terms of covered bonds, and looking at the technicals in terms of supply and demand, this was always going to work extremely well,” said a syndicate banker away from the leads.

The 9bp spread is the second highest on a benchmark covered bond since January, beaten only by 10bp on a €500m five year VUB issue on 17 March and matched by a €500m 12 year green OBG from Crédit Agricole Italia on 8 March.

The strength of demand allowed for pricing up to 1bp through fair value, with bankers at and away from the leads putting this at around 10bp.

“The rule of thumb for covered at the moment is to start 4bp back,” said another syndicate banker, “and then tighten 4bp, or maybe 5bp, and they managed the latter.”

A lead syndicate banker noted the deal was still more than two-and-a-half times subscribed even after some accounts dropped out at the final 9bp re-offer level.

“The issuer hasn’t been around for some time and they did very well,” he added. “Investors like that the deal is undistorted by the vacuum cleaner of the ECB’s political mandate.

CPT covered bonds are set to become rarer, with compatriots Achmea, Aegon and NN Bank all making moves from using the structure to issuing soft bullets, citing broader investor interest and lesser efficiency advantages from CPTs versus soft bullets. Aegon nevertheless achieved a similarly strong outcome to NIBC’s today with the last Dutch CPT benchmark, a €500m five year in November 2020 that attracted more than €2.2bn of orders.

A lead syndicate banker described the decline in CPT issuance as “a bit of a shame”.

“The economics make sense and I’ve never understood why some investors were so negative on them,” he said. “Of course, the pick-up reflects this, as well as them not being eligible for CBPP3.

“The delta to soft bullets has shrunk,” he added, “but in this market the 10bp pick-up is a lot more significant than the 20bp may have been when they started.”