A combined book above €4.7bn for a €2.25bn dual-tranche ING covered bond today (Thursday) gave the market a confidence boost, but showed the split between the buoyant five and challenging 15 year parts of the curve that was in evidence in January to persist, with the long end repricing wider.

The dual-tranche deal was announced this morning and leads Barclays, Helaba, ING, LBBW, Natixis, Nykredit and Santander went out with initial guidance of the mid-swaps plus 4bp area for the February 2027 tranche and the plus 17bp area for the February 2037 tranche, both with euro benchmark sizes and expected triple-A ratings. After an hour and 40 minutes, they reported books above €2.8bn and €900m for the five and 15 year tranches, respectively, excluding joint lead manager interest. After two hours and 25 minutes, they set the spreads at mid-swaps flat and plus 15bp on the back of €3.25bn-plus and €1bn-plus books, respectively, and ultimately set the sizes at €1.5bn and €750m, with final books above €3.4bn and €1.3bn.

The size and pricing of the five year tranche in particular was considered a welcome success after modest outcomes for €500m six year Axa Bank Europe SCF and €500m seven year green Caja Rural de Navarra transactions yesterday (Wednesday), which were the first euro benchmarks since an unexpectedly hawkish ECB meeting last Thursday (3 February).

A syndicate banker away from the leads said the outcome of today’s two tranches and yesterday’s trades suggested a binary approach on the part of investors.

“A short-dated deal from a national champion like ING works extremely well in terms of how much demand you are able to capture, and you’re then able to substantially tighten from IPTs to landing and minimise the new issue premium while taking away a chunky size,” he said. “However, if you’re a smaller name, you will need to pay a bit more initial premium and be a bit more careful about what you can achieve on a given day.

“Similarly, if you’re looking to print on the longer end, you need to be able to stomach the price.”

Syndicate bankers at and away from the leads put the new issue premium for the five year tranche at around 2bp, with ING April 2028s at minus 2bp among pre-announcement comparables circulated by the leads. The last long euro benchmark beyond 10 years was a €1bn 15 year for ABN Amro on 17 January that was priced at 8bp over mid-swaps and was trading around that level today, while a €1.5bn 10 year ING issued in December was trading around its re-offer of plus 1bp.

“The five to seven year part of the curve is still the most liquid,” said a syndicate banker at one of the leads, “and is still pretty much anchored at current spread levels. That doesn’t hold for 15 years, which is clear from where we started today.

“If you compare it with where the ABN that came in January, that’s a large pick-up, and so there’s a clear repricing of the long end of the curve. However, the issuer was not very price sensitive but wanted to get a trade done at the long end and was flexible on size.”

And a banker away from the leads said the repricing at the long end, which has also been in evidence in the SSA sector, meant that little could be gained in talk of new issue premiums.

“It’s a bit unfair because it’s based on secondary levels that are not accurate,” he said. “Today demonstrates where the clearing price is.”

In spite of the recovery in euro covered bond issuance, the pipeline remains thin, said a syndicate banker, with financial institutions keener to take advantage of the parallel improvement in the senior market, particularly after the start of the year having proven a “bottleneck” for the sector.

And another banker said US inflation coming in at a 40 year high today had put a dent in the optimism that had helped the past two days’ issuance.

“I wouldn’t necessarily rule out more supply tomorrow (Friday),” he added, “but the CPI number today is clearly changing the overall market again, so maybe issuers will wait for next week.”