Berlin-Hannoversche Hypothekenbank pushed ahead with a Eu1bn three and a half year Pfandbrief today (Tuesday) even as volatility was paralysing other parts of the capital markets and a European government bond issue was postponed.

The Kingdom of Belgium had yesterday (Monday) announced plans to issue a new six year OLO benchmark “in the near future” but has delayed the project.

“The markets are all over the shop,” said a covered bond banker, “and you couldn’t price anything against this backdrop, even if there is a flight to quality.”

Berlin Hyp nevertheless opened books on a Eu1bn three and a half year Pfandbrief at guidance of the 10bp over mid-swaps area, having taken indications of interest late yesterday at the same level.

The book is understood to have reached more than Eu700m by midday CET and leads DZ Bank, HSBC, JP Morgan, Landesbank Berlin and UniCredit are understood to be targeting pricing later today.

A syndicate official suggested that demand might not reach the Eu1bn issue size, but said that this should not be a problem given the nature of the new issue.

“Even if it is not completely sold in primary, it will then trickle down into the savings banks and Volksbanks for whom this is zero risk weighted,” he said.

He added that the execution of Berlin Hyp’s deal did not mean that the market was open to any covered bond issuer.

“This German stuff works,” he said, “or tends to, if only because it has become a market in its own right, very much dependent on the domestic bid, which you have whatever happens.

“At the moment, I doubt anything else would work, and there is no transaction currently being discussed or rumoured to my understanding.”

Although Moody’s said in a release this morning that the impact of the natural disasters in Japan does not mean an “imminent” financial crisis in the country, the Nikkei 225 fell 10.5% today. This is the biggest percentage fall since the height of the financial crisis, in October 2008, and resulted in the worst two day move since 1987, following a 6% drop yesterday.

European stock market following suit, Germany’s DAX down 4.66%, for example.

“Discussions are really dominated by Japan, the Middle East and changes to the EFSF,” said one analyst, “and these are completely overshadowing any activity. A lot of European investors are on the sidelines as no-one wants to come into a market like this.”