Münchener Hyp today (Monday) achieved a much awaited penetration of sub-Libor territory with a spread of 14bp through mid-swaps for what is said to be the tightest five year covered bond ever, with some bankers taken aback by the level, while UniCredit Bank is out with a 10 year deal.

Leads BayernLB, Credit Suisse, DZ Bank, Goldman Sachs and HSBC gathered nearly Eu550m of orders for a rare Eu500m no-grow issue from Münchener Hypothekenbank, and will price the five year public sector backed Pfandbrief at 14bp through mid-swaps, the middle of guidance of 13bp-15bp through. This followed initial price thoughts of the low double digits through mid-swaps.

The re-offer spread makes it the tightest ever five year covered bond, according to an official at Münchener Hyp, while a syndicate banker saw it as the tightest Pfandbrief supply since September 2006, when Hypothekenbank in Essen tapped a September 2008 public sector Pfandbrief for Eu250m at 13bp through mid-swaps.

A treasury official at Münchener Hyp said he was very pleased by the result for the covered bond market in general, the German Pfandbrief and the issuer, while a lead syndicate official said the outcome was positive.

He said some accounts that had been expected to participate in the deal did not, in part on account of staff coverage aspects, and that although their tickets would have been “useful for incremental demand” an order book of Eu550m from 45 accounts was a good result.

“It got done well, and at a good level,” he said. “We would have had more if a few more PMs were around.”

Syndicate officials away from Münchener Hyp’s deal were struck by what they said was a very tight level – too tight for one, with another saying he was shocked by it.

“They’re much too expensive,” said the former of today’s deals for Münchener Hyp and UniCredit Bank (see below), “but they will get done. In two weeks we’ll see where the real value lies.”

The other said that the level on Münchener Hyp’s deal, when compared with a re-offer spread of 1bp over mid-swaps for a Eu750m eight year Deutsche Bank issue from Friday, valued the curve between five and eight years at around 16bp.

“Something is wrong,” he said. “It’s amazing what Münchener Hyp are doing.”

He said that there were far fewer accounts involved in the deal than is the case in a more “classic” transaction, and that a sub-Eu1bn deal was unusual for the issuer.

Another syndicate banker said that the level on Münchener Hyp’s deal was not unreasonable in comparison with secondary market levels, but that the level was “amazing”, with a coupon of around 0.75%. The deal came at 46.4bp over Bunds [updated].

Another syndicate banker away from the deal noted that Münchener Hyp is launching a public sector Pfandbrief while Deutsche’s was a mortgage-backed deal, and that there is a “relatively meaningful distinction” between the cover pools, and said that he was not shocked by the level.

“It’s good to see someone finally hitting a minus bid,” he said. “We’ve been pretty positive about the ability to come with a negative spread, so it’s nice to see that justified.”

He said that he had imagined that at tight sub-Euribor levels a larger new issue premium would perhaps be necessary, but that Münchener Hyp’s deal was coming roughly flat to secondary market levels.

A February 2017 issue was bid at 17bp through mid-swaps, he said.

“I would expect other issuers who were perhaps sceptical about the potential to price in minus territory to come out of the woodwork,” he said.

UniCredit Bank followed Münchener Hyp into the market this morning with a Eu500m maximum 10 year mortgage Pfandbrief that leads BayernLB, HSH Nordbank, LBBW, NordLB and UniCredit will price at 22bp over mid-swaps, after marketing the deal at 22bp-24bp over mid-swaps. The transaction will come with a spread of 58.6bp over Bunds.

Around Eu700m of orders were placed for the transaction, which is UniCredit’s first benchmark Pfandbrief in just under a year, with a Eu500m four year issue on 27 September 2011 its last such deal.

A syndicate banker away from the leads he expected the transaction to work well, and said that a coupon of 1.875%, which a re-offer spread of 22bp over is expected to give, looks generous in the prevailing low rate environment.

“It will work fine,” he said. “The issuer doesn’t have anything outstanding beyond 2017 and everyone has a line for them.”

Münchener Hyp’s and UniCredit’s deals make for a quick succession of benchmark Pfandbriefe over the course of two working days, after Deutsche Bank sold its September 2020 on Friday. More than 70 accounts placed in excess of Eu1.7bn orders in total, with the average ticket size amounting to around Eu19m, according to a syndicate official at one of the leads – Commerzbank, Credit Suisse, Deutsche Bank and Société Générale.

The order books were open for around 45 minutes, he said, with the strength of demand allowing the issuer to increase the deal from Eu500m to Eu750m while pricing at the tight end of guidance and thereby offering only a minimal new issue concession.

The transaction was the tightest new benchmark covered bond of 2012 until Münchener Hyp’s foray into the market today, according to the lead syndicate banker.

Germany took 54% of Deutsche Bank’s bonds, France 15%, Scandinavia 9%, the Benelux 6%, Austria 3%, other Europe 2%, and non-Europe 11%. Funds and asset managers were allocated 59%, banks 22%, central banks 15%, and others 4%.