Eurohypo launched its fourth benchmark of the year yesterday (Thursday), a Eu1bn two year Pfandbrief offering an attractive spread over Bunds, which took the German issuer closer to meeting its covered bond funding target for the year, a Commerzbank funding official told The Covered Bond Report.

The issue, which was capped at Eu1bn from the outset, was priced at 35bp over mid-swaps, in line with guidance of the 35bp over area, after attracting orders totalling more than Eu1.2bn from 77 investors, according to a syndicate official at one of the leads – Barclays Capital, Commerzbank, DZ Bank, NordLB and UniCredit. The pricing reflected a 10bp new issue premium, according to a syndicate official on the deal.

Rainer Mastenbroek, head of covered bond funding at Eurohypo, said that the bank took advantage of the current market window to contribute to the Eu6bn covered bond funding portion of Commerzbank Group’s total funding plan. The issuer had been monitoring the market for a long time, mindful of wanting to be in a position to take advantage of an issuance window should one appear, he said.

“ING got things off to a good start on Wednesday, and we felt it was beneficial to move quickly,” he said. “That the deal went well and two other issuers [UBS and UniCredit] were in the market at the same time showed this was the right approach.

“The markets are still very volatile, we have to see how things will develop on a macro level, and we had been hearing that investors are very liquid and lacking appropriate investment opportunities.”

He added that a period of calm in the markets had led to a resumption of agency issuance, and that this positive development was able to continue.

The issue was re-offered at 99.957 and came with a 1.875% coupon to yield 1.897%, which was equal to 35bp over mid-swaps, offering a pick-up of just under 119bp over the September 2013 Bund. This appealed to banks in particular, but also to asset managers, Mastenbroek added.

The two year deal is Eurohypo’s shortest dated benchmark covered bond this year, coming after a Eu1.25bn five year sold in January, a Eu500m 10 year in March and a Eu1.5bn three year in May. It was also the shortest dated issue in the market yesterday, with UniCredit opting for a 10 year and UBS for a three and a half year deal.

Mastenbroek said that the decision to go for a 2013 maturity was largely due to the issuer reducing its assets in commercial real estate lending. The smaller size of its 10 year transaction in March was in line with this strategy, he added.

Banks were allocated 60% of the bonds, funds 31%, agencies and central banks 5%, corporates 3%, and others 1%, according to one of the leads. Germany took 69%, the UK 12%, Scandinavia 9%, Austria and Switzerland 5%, the Benelux 2%, and others 3%.