German scepticism about possible euro-zone support measures meant that UniCredit Bank AG encountered less demand than hoped for with a Eu500m four year mortgage Pfandbrief yesterday (Tuesday), an official at the issuer acknowledged.

Leads Commerzbank, Landesbank Baden-Württemberg, Natixis and Santander went out with guidance of the 35bp over mid-swaps area and built a book of Eu600m with 62 different orders.

The issuer had expected a larger order book and a larger transaction, Holger Oberfrank, managing director, head of flow and funding management at UniCredit Bank AG, told The Covered Bond Report.

“Our investors were willing to contribute to the books but in smaller size than we expected,” he said. “We knew exactly that since the market was closed for a couple weeks, we would have an execution risk.”

Cédric Perrier, syndicate official at Natixis, said many German investors were still in wait-and-see mode despite a report that the European Central Bank is considering launching a second covered bond purchase programme alongside wider measures to support the euro-zone.

“I think they think it’s good news but clearly compared to 2009 the market sentiment in terms of growth, euro-zone debt problems, bank capital and other things was not as bad as it is today,” he said. “It’s very supportive, but it’s not the tool that will solve the problems of today – we need to hear more details from the ECB on any CBPP2.”

Oberfrank said the issuer had the perception that the report that sparked speculation about the ECB buying covered bonds again might have been an impetus for the transaction.

“But maybe we were too quick,” he said. “Maybe they are waiting for more detail and transparency to materialise.”

The issuer’s Italian parentage was also cited by market participants as an impediment to the transaction.

“The Italian flavour definitely played a role,” said Perrier at Natixis. “For some of the investors, Italy is still a no-go.”

UniCredit decided to come to market because it has Eu3bn of bonds maturing in September. Oberfrank said the bank had also been doing substantial business on mortgages this year, so the refinancing opportunity was available to it.

After deciding to issue, he said the make-up of the asset pool suggested two maturities, four or 10 years.

“Obviously, from a risk aversion point of view,” he said, “our investors were keener on the four years, rather than committing themselves to 10. Of course we wanted to reduce the execution risk as much as possible.”

Final pricing came in line with initial guidance of the 35bp area. A syndicate official at one of the leads said pricing was based on an outstanding January 2016, which was trading at 30bp, with a new issue premium of about 5bp. UniCredit SpA issued an October 2021 OBG at 215bp over a month ago.

A syndicate official away from the leads said that UniCredit Bank’s issue was well received by central banks, and that it was “difficult to argue that it was the wrong thing for them to do” because there was no certainty it would be able to print Eu500m at the same levels in a few weeks’ time.

Banks were allocated 42.5% of the paper, central banks 37.5%, asset managers 17%, and insurance companies 3%. Germany and Austria took 66.5%, Asia 15%, Sweden 6%, eastern Europe 4%, France 4%, Spain and Portugal 2%, the UK 1.5%, and others 1%.