Aareal Bank will today (Monday) price the first sub-Eu1bn deal of the year, a Eu500m four year Pfandbrief that appears to have been a straightforward sale relative to new long dated issues for Compagnie de Financement Foncier and ANZ.

Compagnie de Financement Foncier and Aareal Bank were out with deals early this morning, with CFF taking indications of interest for and then launching a 10 year obligation foncières issue at the 190bp over mid-swaps level, and Aareal Bank tapping the market with a four year mortgage-backed issue at the 60bp over area. Australia’s ANZ followed suit later this morning, opening order books on a 10.5 year deal with guidance of 130bp-135bp after having collected indications of interest at this level.

Aareal’s deal was the first to reach completion in terms of bookbuilding, with CFF due to close order books around the time The Covered Bond Report went to press and ANZ only having officially opened order books around 1200 CET.

A syndicate official early this morning said he had the impression that CFF’s deal was developing slowly and that this surprised him.

“The pricing is fair and the market is not that bad,” he said. “Sovereign spreads are a bit tighter, the Bund is a bit lower and stock markets are unchanged. It could be the Monday morning blues.”

Another syndicate banker said issuers had taken a large chunk out of the liquidity that had been injected into the market early in the year, but that the market was well supported.

“It won’t stay one-way,” he said, “but for now everything is fine, and the doors are open.”

Around Eu750m of orders had been placed for CFF’s deal by 1300 CET, with Eurosystem orders for the ECB covered bond purchase programme and feedback from some other accounts awaited, according to a syndicate official on the deal. A subsequent update from one of the leads – Deutsche Bank, DZ Bank, HSBC, Natixis and Société Générale – said that order books were in excess of Eu1bn, with the final spread fixed at 190bp over and the deal size at Eu1bn. The order books were due to close at 1400 CET.

A syndicate official away from the leads said that the CFF and ANZ deals looked to be in a similar position with respect to their levels of demand. He said that CFF’s transaction had the potential to be complicated from the outset because of credit line problems, and that the Eurosystem was likely to participate to a greater degree in CFF’s deal than in other French covered bonds that have been priced this year, and that the spread was fair, with a 4.25% yield a good result for investors.

His main worry was ANZ, he said, questioning its decision to launch a 10.5 year deal the same morning that CFF was out with a 10 year issue.

“It’s surprising that they went with a 10 year when they may not cross the Eu1bn line,” he said. “I don’t see why not a seven year rather than having a head to head with CFF. You need secondary performance to allow for follow-up issuance.”

He said that he hoped CFF’s and ANZ’s deals go well given how well the market has help up under heavy supply so far, but that he was getting a “first whiff” of a what could be a difficult situation.

However, a syndicate official at one of ANZ’s leads said that seven years can often be a difficult maturity and that the Australian bank had always been targeting the long end. ANZ is selling a 10.5 year issue, which differentiates it from its Australian peers CBA and NAB, which sold five year covered bonds last week. ANZ, Barclays, Natixis, UBS and UniCredit are lead managing the transaction.

Aareal Bank has launched the first Pfandbrief benchmark since the end of September, a Eu500m four year mortgage-backed issue that will be priced at 58bp over mid-swaps, the tight end of guidance of the 60bp over area.

BNP Paribas, Commerzbank, DZ Bank, LBBW and WestLB gathered more than Eu700m of orders for the issue, which was marketed as for a minimum of Eu500m.

A syndicate official away from the deal said that Aareal is sometimes unfairly seen as a somewhat difficult credit to sell, but that the size of the order book showed that investors approved of the transaction.

“The deal will go well,” he said. “They’ll make their way, and maybe there is a small chance it will outperform.”

He said that Aareal’s move is likely to be followed by other German issuers, and suggested that the medium part of the curve would be a focus, as it would be for other issuers that “cannot/do not wish to/should not” pay the spread required to offer a minimum 4% yield sought after by many real money investors active in the long end of the curve. Short dated maturities are less interesting for many issuers after a recent ECB tender, he added.

Another syndicate banker away from the deal spoke positively about Aareal’s issue.

“It’s a great result,” he said. “They tightened the spread and got the size they wanted.”

He also said that he expected fellow German Pfandbrief issuers to follow suit, although as an issuer whose deals tend to come cheaper than some other German banks Aareal’s did not necessary represent an obvious trade comparison.

Aareal’s deal is the first sub-Eu1bn benchmark covered bond to be launched since new rules came into effect on 31 December that lower from Eu1bn to Eu500m the cut-off point for eligibility for inclusion in the iBoxx euro covered bond index run by Markit.

A syndicate official at one of the leads said that the index eligibility of sub-Eu1bn deals will quickly make itself felt over the coming weeks.

“Over time it will definitely help because more and more investors are benchmarking themselves against the index,” he said.

The Netherlands’ SNS Bank is still in the pipeline with what has been discussed as a short five year deal via DZ Bank, Natixis, Rabobank and RBS. Royal Bank of Scotland held investor meetings related last week and a market participant said that the UK bank could sell a 10 year sterling deal.