Deutsche Pfandbriefbank was undeterred by a flare-up of concerns about Spain and Greece over the weekend to return to the market today (Monday) to increase by Eu200m with no new issue premium a Eu500m seven year mortgage Pfandbrief first launched at the end of May.

Leads Crédit Agricole, Commerzbank, LBBW and UniCredit will price the Eu200m increase at 40bp over mid-swaps, in line with guidance of the 40bp over area, after what a lead syndicate official said was a smooth execution process.

Town hall in the city of Valencia

At 40bp over, the tap is coming 20bp tighter than where the initial deal was re-offered on 24 May, and, according to the lead syndicate banker, does not include a new issue concession over the secondary market bid level.

The increase was limited to Eu200m from the outset due to collateral constraints, he said, with the leads therefore closing the order books quickly after they reached Eu200m.

The transaction was not triggered by concrete reverse enquiries, he said.

“We had the strong feeling that the market was short paper and that people were looking for offers,” he said, “and knew that the issuer would be happy to tap the bonds.

“Given the size we had in mind and the mood in the market last week we felt there would be demand.”

The leads decided to proceed with the increase despite negative headlines about peripheral sovereigns emerging over the weekend, he added, because they felt the developments surrounding Spain and Greece would not significantly hinder the transaction, in particular given its small size.

The tap marks the issuer’s fourth visit to the euro benchmark market this year, with a syndicate banker away from the leads noting that Deutsche Pfandbriefbank (pbb) has had “a pretty good run” in 2012.

“They started on wide levels in January, but all their deals have performed really well,” he said. “People appreciate the performance.”

He said that the latest instalment would probably also tighten, but that the market is too illiquid to predict any longer term performance.

“Liquidity is awful,” he said. “Let’s see in August/September how things stand when the primary market kicks in.”

The 40bp over level is where the initial issue had tightened to on the bid side in the secondary market, he added.

Covered bond spreads were very stable today, according to the syndicate banker, who said that the market backdrop this morning was typical for a Monday, but with negative headlines about Spain and Greece coming on top of this.

A troika of Greece’s international creditors are due to visit the country tomorrow (Tuesday), with a report in Der Spiegel being cited in other media as stating that the International Monetary Fund may not release the next tranche of aid for Greece.

The Spanish region of Valencia has turned to the government’s newly established rescue fund, a move that a banker said already gave markets cause to wobble on Friday, with the regions of Murcia and Catalunya also mentioned as possibly requesting assistance from the fund.

Ten year Spanish government bond yields approached 7.5% to hit a new record, with a syndicate official noting that the Bonos curve is worryingly flattening, with five year yields at around 7.2%. However, away from Spain and Italy the impact on the rest of the market has been relatively muted, he said.

“It’s semi-constructive for the primary market,” he said. “On the whole the big picture is concerning, but taps can get done and the lull in the primary market is good to a degree because it means there is no supply pressure, and covered bond spreads should remain stable.”

Other syndicate officials also said there is scope for opportunistic taps to be launched, and that issuers should take advantage of opportunities to do so.

“Come September the market will either be shut or everyone will be rushing to do something,” said one.

Another noted that there was little new issuance in euros in September last year because market conditions were so poor.