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Germany's NordLB jumps into US covered bond market

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By Andrea Johnson and Danielle Robinson

Oct 11 (IFR) - Norddeutsche Landesbank-Girozentrale becamethe first German issuer to tap the US covered bond market since2006 on Wednesday when it priced a $1bn three-year deal at 50bpover mid-swaps.

The offering, led by Bank of America Merrill Lynch, BNPParibas, Barclays, Credit Suisse and HSBC, attracted US$3bn oforders, two-thirds of which came from US rate investors and therest from Europe and Asia.

The offering ends a year-long wait by NordLB for the rightconditions to debut in the US covered bond market.

NordLB roadshowed last year for its dollar debut, but pulledback at the last minute when eurozone woes caused bank spreadsto gap out across the board in the US.

At 50bp over mid-swaps, or about 61bp over Treasuries, thedeal was priced about 5bp tighter than whispered talk, and about4bp more than Nordic comparables.

The deal tightened in as much as 8bp in the aftermarket, to42bp over mid-swaps and to 53bp bid/50bp offered overTreasuries.

Compared to what it could do in euros, however, NordLB paidup for its prudent move to diversify its sources of funding.European covered issuers will normally spend an extra 5bp-10bpover what they could do in euros for diversification purposes.

It appears that NordLB paid more, at least when comparedwith comparables in the pfandbrief market.

Muenchner Hypo, for instance, recently did a five-yearpublic pfandbrief at mid-swaps minus 14bp, which was tradingaround minus 7bp on Wednesday.

"So a NordLB three-year would price at least at 10bp minusmid-swaps, which translates to around three-month Euribor flat,"said one market source.

"(This) deal printed at Euribor equivalent of mid-swaps plus20bp, so the dollar deal basically came about 20bp back of wherea euro-denominated pfandbrief could get done."

Yet NordLB now has something that other German banks wouldlove to have: diversification away from a euromarket that hassuffered much longer bouts of shutdown in times of crisis, whilethe US market remains open.

"NordLB has been planning this deal for a while," said onefinancial institutions group banker.

"In general, German banks have US dollar assets they need tofund, so they all want to do a dollar covered bond, rather thanfunding in euros and swapping back to US dollars."

Investors, however, feel not only that current europfandbrief spreads are inordinately tight, but that Germanlandesbanks need to offer some extra spread given the ongoingeurozone problems.

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(Reporting by Andrea Johnson and Danielle Robinson; Editing byMarc Carnegie)

((andrea.johnson@thomsonreuters.com; Reuters messaging:andrea.johnson.thomsonreuters.com@reuters.net))

Keywords: US BONDS GERMANY/NORDLB