UBS Switzerland generated a staggering €7.4bn-plus of orders for a €1bn five year debut euro benchmark today (Tuesday), and even lead bankers were taken aback at execution including as much as 14bp of tightening, with the lure of rare Swiss exposure deemed key to its reception.

Following a mandate announcement and marketing yesterday (Monday), leads Commerzbank, Danske, DZ, Helaba, ING and Natixis this morning opened books with guidance of the low 60s area for a euro benchmark-sized March 2029 contractual covered bond, expected rating AAA (Fitch). After a little over an hour, they reported books above €3bn, excluding joint lead manager interest, and after close to two-and-a-quarter hours, they revised guidance to 50bp+/-2bp, will price in range, and set the size at a maximum of €1bn with books above €6.7bn, including €745m of joint lead manager interest. The deal was ultimately priced at 48bp and the size set at €1bn on the back of a final book above €7.4bn, including €745m of JLM interest.

“I’ve been around a long time but I don’t think I’ve seen a book this big,” said a syndicate banker at one of the leads. “Those investors who found this attractive, they found all the money they had in their drawers and threw it at it.”

As well as the size of the order book, the size of the tightening is one of the biggest seen in the euro covered bond market, and the lead banker said this was due to the lack of comparables due to the uniqueness of the product as well as some investors holding their cards close to their chest.

“We found the starting level of the low 60s to be inclusive, but at the end of the day, nobody knew where this was going to price,” he admitted. “It was digital, because many investors, if not all of them, want to have exposure to Swiss residential mortgages – I mean, there’ll be many things in the world that will burn before Swiss family homes; they’ll probably be the last ones standing. So the assets are impeccable and UBS obviously a much better name than the Credit Suisse covered attempted a couple of years back.

“There’s then all the non-standard features, like not LCR-eligible, withholding taxes and whatnot, and how you compensate for these. So at the end of the day, a lot of price discovery. The question that will never get answered is, what would have happened if we had started much tighter? Would we have had a €1bn book? We’ll never know.”

The book was boosted by around 10 triple-digit orders, according to the lead banker, and with a very long tail of orders, as more than 190 investors were involved. This included not only EU and UK asset managers, but also many banks, he added, and some accounts potentially putting in orders for portfolios not typically active in covered bonds.

“To have these assets via this slightly unconventional vehicle at this price was simply too good to turn down for many,” he said.

“Instead of putting in €30m or €40m orders as they would have done a year ago, now it’s triple-digits for the big investors.”

A syndicate banker away from the leads said the recent evolution of the covered bond investor base had proven supportive.

“The fact that you’ve got people other than banks getting really involved in this market helps,” said a syndicate banker away from the leads, “because you can kind of overlook that there’s no legislation, no LCR, no beneficial risk weighting. It is index-eligible, just like the Japanese stuff is.

“I had a look yesterday just to see where the Japanese were and it was like the high 60s, so the fact that they’re able to come at 48bp, inside where you might see some Level 2 LCR names, is super-impressive.”

Pre-announcement comparables circulated by the leads included Australian, Canadian and UK paper, with CBA February 2028s and NAB February 2031s seen at 44bp and 53bp, mid, respectively, RBC July 2028s and TD March 2030s at 41bp and 50bp, and Nationwide November 2028s at 39bp, for example.

As alluded to by the lead banker, the execution was a far cry from the one and only euro benchmark issued off a similar Credit Suisse programme in December 2022, before the bank was absorbed by UBS. That €750m three year trade was priced at 73bp on the back of €1.1bn-plus of orders.

“It certainly is a different reception to what we were dealing with at the back-end of 2022,” said one syndicate banker. “Clearly, it’s a bank in a much different situation.”

UBS previously issued euro benchmark covered bonds under an old programme until 10 years ago. The new programme of UBS Switzerland was inaugurated with a domestic CHF820m deal in October 2023.