Deutsche Hypothekenbank came up against a prevailing risk-off sentiment in the euro market when it yesterday (Tuesday) launched a Eu500m maximum seven year Pfandbrief that failed to entice much demand with investors passing on tightly priced paper from safe haven names.

Leads BayernLB, DekaBank, DZ Bank, NordLB and UniCredit priced the mortgage backed issue at 4bp over, in line with guidance, with a lead syndicate official saying that fixing the spread at the wide end would not have made a difference to the level of demand.

“People in general are more worried than positive, which is why they’re passing on a lot,” he said. “The bonds will see a sensible performance, but the extent of the risk-off sentiment was unexpected.”

A syndicate banker away from the leads said that fading enthusiasm has been a theme over the past couple of sessions in the euro market, and that Deutsche Hypo’s deal is evidence of a lack of interest in core euro deals with tight valuations as they compete with SSA deals trading some 20bp-25bp cheaper.

RBS analysts said that the pricing on Deutsche Hypo’s deal was ambitious for what is a Aa2 rated covered bond, noting suggestions that the deal was not oversubscribed – the size of the order book was not disclosed by the leads.

“This shows that investor demand for safe haven names at these tight prices has significantly declined,” they said, adding that this is also in evidence in the supra and agency market with less demand for the likes of Kreditanstalt für Wiederaufbau and European Investment Bank, in euros, at least.

The lead syndicate official also noted that core SSA paper has widened recently, with a recent KfW five year issue for example trading around 11bp through mid-swaps after having been priced at 5bp through.

German accounts were allocated 84% of the Deutsche Hypo bonds, Asia 10%, the Benelux 4%, and Austria/Switzerland 2%. Banks took 44%, central banks 30%, and funds 26%.