BayernLB is pricing a 10 year public sector Pfandbrief today (Wednesday), with the German bank said to have prioritised spread over size for an atypical sub-Eu1bn deal in a project that dates back to last summer, as FIG supply elsewhere eased.

Syndicate bankers are generally expecting BayernLB’s deal to be the last euro covered bond benchmark for this week given central bank rates decisions tomorrow (Thursday) and US non-farm payrolls on Friday. The senior unsecured market has also calmed down after a frenzy of issuance starting with a dual tranche deal from Nordea last Friday (29 June), with a Nykredit Realkredit junior covered bond tap the only other FIG supply in the market today.

A syndicate official noted that the seven senior deals totalling Eu10bn in the past four trading days is as much supply as there was in the entire second quarter.

BayernLB will price its Eu500m deal, a public sector Pfandbrief, at 17bp over mid-swaps on the back of some Eu750m of orders. Leads BayernLB, Crédit Agricole, Credit Suisse and RBS gathered indications of interest on the basis of the 20bp over mid-swaps area yesterday (Tuesday) afternoon, and then set official guidance tighter, at the 18bp over area, when they opened books shortly before 0900 CET this morning, according to a lead syndicate banker.

He said that the deal was marketed as a benchmark, with the issuer prioritising spread over deal size, and that the order book would have allowed for a larger deal. The issuer saw the deal as a strategic transaction to re-establish itself on the capital markets, he added.

The deal executes a mandate going back to last summer, when the issuer had gotten as far as shadow bookbuilding before a Moody’s rating action – placing BayernLB’s and three other German public sector banks’ ratings on review for downgrade – early the next day prompted BayernLB to pull back from launching a transaction, with the issuer in a statement thanking those investors who had shown their support. [Click here for related coverage.]

In launching a 10 year public sector backed Pfandbrief today, BayernLB is sticking to last year’s new issue project with respect to the maturity and collateral, but appearing with a slightly amended lead manager line-up – Deutsche Bank was mandated as one of the bookrunners last year – and also departing from the Jumbo target for the deal planned last year.

A syndicate official away from the deal noted that this is BayernLB’s first sub-Eu1bn benchmark, marking a sort of “departure from tradition”. He said that the execution reflected a price-over-size approach, and that the pricing made sense, fitting with the broader German asset class.

BayernLB had repeatedly cropped up as a possible new issue candidate in recent weeks as several of its German peers tapped the market to lend a strong Pfandbrief flavour to primary market activity since the end of May, with Münchener Hypothekenbank on 30 May and then Deutsche Bank a day later selling 10 year deals. These were priced at 10bp over and 12bp over, respectively.

A syndicate official away from the leads said that BayernLB had started the new issue process with a fairly generous spread by setting indications of interest at the 20bp over area, but that tightening the pricing to 17bp was a legitimate move, in particular when it is only selling Eu500m.

“They wanted to play it safe,” he said.

A lead syndicate banker said that BayernLB had on a few occasions considered tapping the market but “things got in between” and that this time it had received the green light to go ahead and take advantage of stable market conditions.

Nykredit Realkredit is tapping a recently launched 3.25% June 2017 junior covered bond by Eu250m today, via BayernLB, BNP Paribas, DZ Bank, JP Morgan, LBBW and Nykredit.

The issue, originally for Eu500m, was first launched on 23 May, at 200bp over mid-swaps, with the leads today marketing the increase at 180bp-185bp over mid-swaps. A syndicate banker away from the deal said the transaction seemed to be going slowly.