Deutsche Bank priced its third and biggest benchmark covered bond of 2012 today (Friday), with a re-offer spread of 1bp over mid-swaps fuelling discussions of sub-Libor pricing and a lead syndicate official praising the bank’s move to get ahead of an expected pick-up in supply.

After announcing the mandate for a Eu500m deal yesterday (Thursday) afternoon, leads Commerzbank, Credit Suisse, Deutsche Bank and Société Générale this morning gathered more than Eu1.3bn of orders for the mortgage Pfandbrief, according to a syndicate official on the deal. The deal was priced at 1bp over mid-swaps, the tight end of guidance of 1bp-3bp that followed initial price thoughts of the low to mid single digits.

Deutsche Bank, Frankfurt

Syndicate bankers away from the leads complimented the transaction, and saw the pricing as flat to through the secondary market curve.

“It looks very well executed,” said one. “The initial price thoughts looked a bit cheap, but in the end Eu750m at 1bp over is a good outcome, and the level is absolutely fair.”

Today’s deal follows two Eu500m benchmarks for the issuer this year, a seven year sold in February and a 10 year that was launched at the end of May. Syndicate bankers away from the leads put the June 2022s and the March 2019s each at 1bp over bid.

A lead syndicate official said there was no issue premium on today’s deal for Deutsche.

A tighter re-offer spread – mid-swaps flat – would have been achievable, he added, but a sensible decision was taken to not push pricing too far.

“It was a very smooth process,” he said.

As spreads have tightened toward pre-crisis levels syndicate bankers have flagged the prospect of a new issue coming with a negative spread for the first time in several years, but the lead syndicate official said sub-Libor pricing was not discussed for Deutsche’s deal.

However, a five year deal from a high quality German Pfandbrief issuer could come through Libor “fairly well”, he added.

Another syndicate banker spoke of psychological barriers to sub-Libor pricing for new issues, while another covered bond banker said that it is only a matter of time before a new issue comes with a negative spread.

He said that the importance of the spread over German government bonds rather than the spread over spreads explains why Pfandbrief spreads can be so tight.

“With swaps spreads relatively wide, particularly at the short end and relative to absolute bund yields, a 5 year Pfandbrief at swaps flat gives you triple the coupon of the government bond,” he said.

The syndicate banker on Deutsche’s deal said that the issuer was right to take advantage of an issuance window ahead of an anticipated increase in primary market activity next week, noting that the week commencing 10 September will be more challenging given a five year Bund auction and a keenly awaited ruling by Germany’s constitutional court on the European Stability Mechanism (ESM) on Wednesday, 12 September.

“The window is very small for German issuers,” he said. “Deutsche said ‘let’s do a trade’, let’s not faff.”

Very little, if any, new benchmark covered bond supply has hit the market on a Friday in recent months, with execution risk often associated with such a move, but the lead syndicate official downplayed this notion.

“Friday means nothing now,” he said.

Other syndicate officials said a busy calendar of euro-zone crisis relevant political and institutional meetings in September could encourage issuers to try to take advantage of an issuance window in the first half of next week, before an ECB meeting on Thursday.

“There are so many potential pitfalls in September with the ECB, the G20, the ESM decision,” said a syndicate banker.

Raiffeisen Landesbank Niederösterreich-Wien (RLB NÖ) is finishing a roadshow on Monday and is understood to be aiming to launch its inaugural euro benchmark on Tuesday, with a 10 year maturity having been mentioned in connection with the new issue project.

A Storebrand Boligkreditt mandate for a Eu250m issue is also in the pipeline, with syndicate bankers also highlighting the possibility of further German Pfandbrief supply.

Crédit Agricole has announced that it will next Wednesday (5 September) at a meeting in Paris introduce to investors its new Export Credit Agency obligations foncières programme. The meeting is due to be followed by investor calls early the following week.

Hungary’s OTP Mortgage Bank yesterday sold a Eu510m March 2015 issue at 400bp over three month Euribor, in line with guidance, after increasing it from the Eu500m at which it was initially marketed. BNP Paribas is the sole lead. The bonds are rated Baa3 by Moody’s.

Gyorgy Szelenyi, advisor to the chairman at OTP Mortgage Bank, said that at Eu510m, the final size of the transaction slightly exceeded expectations, with the issuer having initially targeted Eu450m-Eu500m.

“It means that institutional investors showed good interest,” he told The Covered Bond Report.

The issuer is happy with the pricing, he added.

“The spread reflects the current market situation, including sovereign levels,” he said. “There are investors who expect Hungarian levels to improve so for a deal maturing in two and a half years the level was appreciated.”