NordLB met with strong demand for a long seven year public sector Pfandbrief this (Tuesday) morning, with more than Eu1.5bn of orders placed, allowing for pricing at the tight end of revised guidance and inside a targeted level, according to a lead syndicate official.

Leads Credit Suisse, ING, Natixis, NordLB and UniCredit opened the order books for a Eu500m no-grow December 2019 transaction this morning on the basis of guidance of the low teens over mid-swaps, after announcing the transaction yesterday (Monday).

A lead syndicate official said that the order books built very quickly, exceeding Eu1.5bn, with some accounts already registering interest yesterday without any price sensitivity.

“It shows how strong the name and the product are,” he said.

The guidance was revised to the 10bp over mid-swaps area and the deal will be priced at 9bp over, which the lead syndicate banker said was pleasing given that the issuer had a spread target of around 10bp over in mind.

NordLB, Hannover

A re-offer spread of 9bp compares with pricing of 17bp over for a Eu500m 10 year BayernLB public sector Pfandbrief that was the last euro Pfandbrief benchmark backed by traditional assets, with the likes of Deutsche Pfandbriefbank and Aareal Bank having sold Eu500m five year mortgage deals at 20bp over and 38bp over before that, for example.

Today’s deal for NordLB comes after the issuer last Tuesday (10 July) priced the first ever aircraft Pfandbrief, a Eu500m five year issue, at 55bp over. That was said to have tightened to around 40bp over.

Syndicate bankers away from the deal said the pricing was in line to tight compared with other Pfandbrief transactions, with one noting that a NordLB January 2021 issue had been trading at around 18bp over bid a couple of days ago.

The pricing made sense given the magnitude of structural demand in the market, he said.

“It looks really tight, but there’s a huge scarcity of supply and investors are cash rich,” he said. “There’s a huge run on good quality covered bonds.

“Yields are so low that people need to diversify to satisfy their yield appetite so apart from Italy and Spain everything is tightening.”

Another syndicate banker away from the leads said the spread on NordLB’s deal was not especially tight, and that the low teens seemed a generous starting point.

“The end result is OK,” he said. “It’s no big surprise where they came.”

The lead syndicate official said that the low teens seemed like the right level, taking into account the secondary market level for NordLB’s 2021s and the interest for its new deal that had been registered after the transaction was announced yesterday. At 9bp over the deal came inside secondary market levels, he added.

Around 85-90 accounts participated in NordLB’s public sector Pfandbrief, according to the lead syndicate official, with German investors driving the transaction but some quality foreign accounts also involved.

“This shows there’s value in the trade and the strength of the name,” he said.