Orders poured in for a 10 year CBA issue this (Wednesday) morning as accounts took syndicate officials by surprise by putting aside yield bogeys to buy a deal that bankers said came with a brave choice of maturity. Meanwhile, Suncorp’s plans are said to have advanced.

Leads Barclays, CBA, Deutsche Bank and UBS had gathered more than Eu3bn of orders shortly before they were due to close the order books on Commonwealth Bank of Australia’s deal, and will price a Eu1.5bn issue at 89bp over mid-swaps.

This follows official guidance of the 92bp over area (+/- 3bp), a sharp tightening of initial price thoughts of the 100bp over area.

Syndicate bankers away from the leads were struck by CBA’s move to tap the market with a 10 year, a maturity they said would seem challenging given a low yield and volatile market environment.

Today’s deal is CBA’s second euro benchmark covered bond, and the second 10 year issue from an Australian bank. The last 10 year euro benchmark was a Eu500m WL Bank deal, from 22 March.

A lead syndicate official said he was pleased to hear that other market participants considered 10 years to be a challenging proposition, adding that the strength of demand for CBA’s deal was somewhat surprising given that many accounts previously indicated yield targets of 3.25%-3.5%.

However, investors were all of a sudden putting aside these yield bogeys, he said, with some accounts placing orders in sizes that have not been seen in order books for a few months.

“A lot individual decisions were taken to buy despite the low yield environment, rendering the whole yield bogey issue obsolete,” he said.

The relevance or otherwise of accounts’ yield targets amid prevailing market conditions has come to the fore in other long dated transactions this year, too, such as a DNB Boligkreditt Eu2bn 10 year issue in March.

Speaking when official guidance had not yet been set, a syndicate banker away from CBA’s deal said that the spread was fair and that tighter pricing, of 95bp over, was likely, but that he was surprised to see an issuer testing the market so soon with a 10 year deal.

“The market has been very volatile since the beginning of the week,” he said. “The Bund future went over 140 although it came in a bit again, and that always puts pressure on swaps and yields.”

A coupon of 3.25% would seem important to be able to offer, he added, noting that this would mean perhaps having to leave the spread at 100bp.

Another syndicate banker also thought the deal would be challenging despite generous pricing at the 100bp over area, but said that the move from that spread level to official guidance of the 92bp over area showed the deal was going very well.

“It sets a very good signal for a deal like this to work in this kind of market,” he said.

A spread of 92bp over would give a coupon of just about 3.125%, according to the banker.

Suncorp Bank is reported to have appointed Barclays Capital and Deutsche Bank to arrange a covered bond programme, potentially making it the first Australian bank beyond the big four to enter the market. A spokesperson for the bank said that covered bonds are an opportunity that Suncorp is exploring, but that he could not comment on market speculation about a programme.

David Foster, Suncorp Bank’s chief executive officer, said in late March that the bank was considering covered bond issuance (see here for more).