DNB Boligkreditt yesterday (Tuesday) sold the longest dated Nordic benchmark covered bond this year, a Eu2bn 10 year that a lead syndicate official said was a “litmus test” for that part of the yield curve, in particular for tighter core jurisdictions, with initial price thoughts already leading to a sub-3% yield.

The benchmark was priced at 61bp over mid-swaps, following guidance of the low 60s, after leads BNP Paribas, HSBC, NordLB and UniCredit gathered nearly Eu3bn of orders. The deal is said to be sought after in the secondary market, trading at around 56bp mid today.

Early order book momentum was driven by German investors, according to a lead syndicate official, with orders quickly passing Eu2bn and exceeding Eu2.8bn one hour after the books were opened. Guidance was at this stage revised to a final spread of 61bp over, with the leads closing the order books half an hour later.

German and Austrian investors dominated the order book, taking 65%, followed by the Benelux with 13%, France 6%, the UK 6%, the Nordics 3%, Switzerland 3%, Asia and the Middle East 3%, and others 1%. Banks were allocated 35%, insurance companies and pension funds 34%, fund managers 24%, central banks 6%, and others 1%.

The deal came with a 2.75% coupon, the lowest coupon for any euro benchmark with a maturity of 10 years or longer since at least the beginning of last year.

“This transaction was a litmus test for the 10 year sector, especially for the tighter core regions,” said a lead syndicate official, “as already the initial price thought was leading to a yield inside of 3%.”

Marco Pidancet, director, covered bond syndicate at UniCredit, said that while a minimum 3% coupon is per se a deal driver for insurance companies, who typically see that as the minimum level necessary for them to engage, these accounts also recognise and accept the implications of the prevailing low yield environment and the marked spread performance over the past couple of months.

“They know that they won’t get a 3% coupon for a 10 year Pfandbrief or high quality Norwegian covered bond any time soon, so know they have to participate if they want such paper,” he added.

Most of this demand came from Germany and Austria, according to Pidancet, with French insurance companies more focussed on long dated supply from domestic issuers. He also noted that bank treasuries have extended the maturity profile of their investments, in some cases even out to 10 years.

Yesterday’s deal represents an acceleration of DNB’s original plans to return to the benchmark market in April, according to another lead syndicate official, with a deal said to have been under discussion last week.

Pidancet said that market conditions on Monday were decisive in prompting the issuer to proceed with a deal.

“There was no change in absolute yield level from last week,” he said, “but market sentiment was clearly better.

“Resolution of the Greek situation, at least for the time being, and the triggering of CDS were non-events in terms of market volatility, which was positive and provided an issuance boost across all asset classes on Monday.”