HSH Nordbank announced a Eu500m no-grow five year Pfandbrief yesterday (Tuesday) afternoon that could be launched after a roadshow ends today, while elsewhere syndicate bankers were reflecting on how supply and a rally in covered bond spreads had stalled.

Commerzbank, DZ Bank, HSH Nordbank, RBS and UniCredit were mandated for HSH Nordbank’s deal. A syndicate official at one of the leads said they would not open books before tomorrow morning, at the earliest. The issuer finishes a roadshow in London today.

A syndicate banker away from the deal expected guidance to be about 15bp-20bp over mid-swaps.

“I think it will be very, really tight even if HSH is among the Landesbanks that faced difficulties a while ago,” he said. “The mechanics of the Pfandbriefe are so strong, and it’s a no-grow, so it shouldn’t be a problem.”

The mortgage Pfandbriefe have an expected rating of Aa1 on review for downgrade from Moody’s.

Another banker away from the leads put the level at 17bp-20bp.

“HSH is not an obvious issuer in terms of core, tier one German issuers,” he said.

He compared the deal with a WL Bank Eu500m March 2022 issue launched last Thursday at 26bp over mid-swaps that is trading at 23bp/19bp.

“A new five year from WL Bank would come at maybe 10bp over mid-swaps,” he said, “so I think it’s fair to put HSH in the high teens in relation to that.”

Another syndicate official agreed that a level in the high teens seemed fair. He noted HSH’s last transaction was a July 2013 that is now at 11bp bid.

The banker compared the level with an outstanding Eurohypo May 2016 at 25bp on the mid.

“HSH is probably slightly better than Eurohypo, which would probably put out a new five year in the high 20s,” he said, adding that the deal should go well due to a lack of supply in the Pfandbrief market.

The pipeline was otherwise quiet today, with syndicate officials noting a recent spread rally had come to an end.

“Most deals are slightly wider than last Friday, or they have leveled out,” said one.

Another syndicate banker echoed this.

“It couldn’t carry on,” he said, adding that Lloyds senior unsecured and covered bond issues each in the January 2017 maturity had tightened about 50bp and 95bp, respectively, over a similar period since launch.

“It should almost always be the other way around, so there is no surprise the tightening is stopping,” he said.

He said issuers were well funded for the year, with many 60%-80% funded, after having accessed the ECB LTROs.

“We have to be sort of cognisant that we may be talking about fewer deals going forward per week,” he said.

But another syndicate official said the tightening on covered bond spreads had merely stalled.

“I think it’s a pause,” he said. “It will continue over the course of the year.