ING-DiBa sold a Eu500m seven year issue yesterday (Tuesday) that is said to have attracted the strongest demand for a German Pfandbrief in 12 months, with an official at the issuer saying that it challenged received wisdom about foreign interest in Pfandbrief at tight levels. However, a turn in sentiment could put off further supply until next week, according to some bankers.

Resurfacing concerns about the global macroeconomic outlook combined with uncertainty about the Greek PSI (private sector involvement) operation contributed to a substantial sell-off yesterday, and one syndicate official said that the primary market is likely to be quiet as a result over the coming days.

He said that he was aware of two to three new issue projects across euros and dollars that would have been possible if market conditions were better, but that the upcoming PSI deadline and central bank meetings this week will keep issuers on the sidelines.

“I don’t want to say we’re done for the week, but it will be a quiet couple of days,” he said.

Another said that the covered bond market is stable, but that in macro terms market sentiment “took a bit of a nose-dive” and that market participants are in a “holding pattern”, possibly until next week when the situation can be reassessed.

One banker said that Spanish and Italian government bonds had in the past 24 hours given up the gains they made through February, with deals from the two countries that were being considered now unlikely to emerge. But he said that investors, particularly in France and Germany remain cash rich and would be willing to get involved in further stable and highly rated names.

Leads BNP Paribas, Commerzbank, ING and Landesbank Baden-Württemberg announced ING-DiBa’s transaction on Monday afternoon, and Frank Parensen, senior treasurer, liquidity and funding at ING-DiBa, said the screen announcement deliberately only stated the maturity without pricing thoughts to avoid a rush of indications of interest coming in as had been the case for a Deutsche Bank deal two weeks ago.

Deutsche Bank on 22 February sold a Eu500m seven year issue at 22bp over mid-swaps, with deal execution brought forward after nearly Eu1.5bn of orders were placed before the leads officially opened the order books.

“It was a balancing act,” said Parensen, “because we wanted to give investors enough time to be prepared for the deal but we didn’t want to go out with pricing levels so only announced the maturity.”

A syndicate official said that “a good amount of orders” were collected before the leads opened the order books yesterday morning at 0900 CET.

Initial spread guidance was set at the 20bp over mid-swaps area for a Eu500m seven year “no-grow” transaction, with more than Eu1bn of orders placed after 15 minutes despite the tight guidance, said a lead syndicate banker.

The leads subsequently revised guidance to 17bp-20bp over and closed the books at 0930 after having gathered some Eu2.6bn of orders. The deal was priced at 17bp over, the tightest spread on a euro benchmark covered bond this year.

A syndicate official at one of the leads said the order book was the largest for a German Pfandbrief benchmark in more than 12 months.

A syndicate banker away from the leads said the trade was a blowout, benefitting from support in Germany and developing international investor interest as the issuer builds a yield curve.

Parensen told The Covered Bond Report that the issuer is very satisfied with the transaction, which went even better than expected.

It also helped debunk a myth that only domestic accounts are willing to buy Pfandbriefe at prevailing tight levels, he suggested.

“The pricing was very, very tight, but the share of foreign demand was still high,” he said. “It’s always said that only German accounts buy Pfandbriefe at these high prices, but our deal showed that this is only partially true.”

Foreign investors bought 41% of the bonds, led by Asia with 13%, the Nordic area 6%, France 6%, the Benelux 4%, Switzerland 3%, Austria 2%, the Middle East 2%, Italy 2%, the UK 2%, and others 2%. Domestic investors took 59%. Funds took 38%, banks 27%, central banks 19%, insurance companies 10%, corporates 1%, and others 5%.

Patrick Steeg, head of syndicate and MTNs at LBBW, said that while 17bp over mid-swaps was already a great success for ING-DiBa, the paper was this (Wednesday) morning quoted at 10bp/14bp over.

“ING-DiBa is a rare name, has the best German mortgage portfolio, and clearly has to be differentiated from other names in Germany,” he added.

Parensen said that the issuer aimed to price a transaction after the second ECB longer term refinancing operation (LTRO) had been carried out (on 29 February), with a roadshow scheduled the week of the LTRO with this timing in mind.

Anticipation of further spread tightening is said to be keeping some issuers on the sidelines, but Parensen noted that although the market has been very stable recently and spreads could perhaps come in, a certain degree of uncertainty is also present, partly linked to speculation about Greek government debt writedowns.

“From today’s perspective we achieved fantastically good pricing,” he said.

ING-DiBa’s benchmark came after a five day pan-European roadshow to update investors on the issuer’s 2011 results and credit story, which Parensen said was important given that the bank is a relatively new issuer and investors need time to establish credit lines.

He said that the roadshow paid off, with around 110 accounts participating in yesterday’s transaction compared with around 60 in the issuer’s debut, a Eu500m five year sold in June.

According to a syndicate banker at one of the leads, investors were most interested in a five or seven year Pfandbrief from ING-DiBa, and Parensen said that the issuer opted for the longer dated of the two for asset liability management reasons.

“With a long average maturity of cover pool assets we had to take advantage of a market environment that allowed us to go for longer term funding.”