Bawag PSK attracted more than €2.1bn of peak demand to a €500m no-grow eight year green covered bond debut today (Tuesday), allowing it to tighten pricing 5bp and achieve a level flat to its curve, which bankers suggested reflected both its green nature and the technical strength of the market.

The Austrian lender last week announced plans for a debut green bond off a new framework and yesterday (Monday) teed up the covered bond with a mandate announcement.

After premarketing, leads Erste, HSBC, ING, LBBW and NordLB this morning went out with initial guidance of the mid-swaps plus 5bp area for the €500m no-grow September 2029 mortgage covered bond, expected rating Aaa. After around 40 minutes, they reported books above €1.4bn, excluding joint lead manager interest, and after an hour and a half they revised guidance to plus 1bp+/-1bp, will price in range, on the back of more than €2.1bn of orders, excluding JLM interest. The deal was ultimately priced at mid-swaps flat, with a €1.6bn book good at re-offer.

Syndicate bankers at and away from the leads said the new issue came flat to fair value, suggesting that the level of demand and pricing had been supported by the green nature of the transaction attracting additional orders, and the overall lack of covered bond supply.

A lead syndicate banker said the deal “couldn’t have gone better”.

“Yesterday we were pretty much focused on plus 1bp,” he said. “We wanted to go as tight as possible, but said that to get to flat we would need a book of at least €2bn because we knew we would lose accounts if we tightened 5bp.

“We managed to get there, and we’re happy, the issuer is happy, and – with the bond performing – we expect investors will be happy, too, despite the tight pricing.”

A banker away from the leads said he had advocated the same starting point as the lead syndicate and that the strength of demand had surprised to the upside.

“Apparently investors were not that price sensitive,” he added.

The lead banker said the pricing probably reflected a greenium of 1bp, noting that some large, dedicated ESG accounts participated. But he also highlighted the prevailing lack of net covered bond supply.

“We had maybe 55 to 60 accounts good at re-offer, which is not as many as earlier this year,” he said, “but some of these investors are putting in large orders because they are not expecting that much supply, and you can play on that in the pricing.”

Another syndicate banker away from the leads noted that the 5bp move from initial guidance to re-offer was higher than that achieved by the first two post-summer deals last week, €500m five year Pfandbriefe from Berlin Hyp and Deutsche Pfandbriefbank (pbb). He also highlighted Bawag’s pricing as illustrative of how compressed are covered bond spreads, with the mid-swaps flat level of its eight year flat to where pbb priced its five year and 2bp wide of Berlin Hyp’s level.