HSH Nordbank doubled its 2012 euro benchmark covered bond funding with a Eu500m four year issue yesterday (Wednesday), with an official at the bank saying that market dynamics were allowing German Pfandbriefe to be sold at attractive levels for issuers.

The no-grow deal attracted some Eu950m of orders during 50 minutes of bookbuilding, with 79 accounts participating, according to Frank Teuber, head of funding execution and syndicate at HSH Nordbank.

Leads BNP Paribas, Commerzbank, DZ Bank, HSBC and HSH Nordbank priced the issue at 18bp over mid-swaps, the tight end of guidance of the 20bp over area that followed initial price thoughts of the low 20s over.

As was the case with a Eu500m five year mortgage Pfandbrief for HSH Nordbank that was priced at 33bp over at the end of March, yesterday’s deal was priced in line with the issuer’s private placement levels, which is usually rare, said Teuber.

“We achieved an attractive spread,” he said.

HSH was encouraged to come to market by the outcome of Pfandbrief deals last week, said Teuber.

“The market is very volatile and there was a window after the Pentecost weekend, with impressive deals from Berlin-Hannoversche Hypothekenbank and Landesbank Baden-Württemberg,” he said. “We concluded that there is strong demand, in particular for German Pfandbriefe.”

A flight to quality is combining with a scarcity of Pfandbrief supply to help fuel demand and tight pricing for the asset class, according to syndicate bankers, and Teuber acknowledged that risk aversion is playing into the hands of the German Pfandbrief.

“How long this will last and to what extent such levels are achievable, I don’t know,” he said, “but it is good for the Pfandbrief.”

And with four year Bunds yielding 0.18% investors are attracted by higher yielding Pfandbriefe, said Teuber, with HSH’s issue, for example, offering a yield seven times as high, at 1.235%, even if this is still low.

German accounts were allocated 82% of the bonds, other Europe 7%, the Middle East 7%, and Asia 4%. Banks took 46%, funds 27%, central banks 21%, corporates 3%, pension funds 2%, and private banks 1%.