BayernLB is aiming to price a $500m (Eu386m) two year Reg S US dollar mortgage Pfandbrief by tomorrow (Tuesday) after opening books this morning, while a nearly three week lull in euro benchmark covered bonds showed no signs of ending as issuers focussed on senior deals.

BayernLB

JP Morgan is sole lead on BayernLB’s transaction, which is being marketed at 30bp over mid-swaps. The deal is coming in Reg S format and will not be distributed to US accounts.

Syndicate officials put the euro equivalent level at around 18bp through six month Euribor, with one suggesting that the issuer could achieve a better level in euros. The issuer is understood to have dollar funding needs.

Secondary market spread data for Jumbo Pfandbriefe provided under an initiative by the Association of German Pfandbrief Banks (vdp) point to an indicative average spread of 18.1bp through six months Euribor mid for a BayernLB November 2014 public sector Pfandbrief.

NordLB on Wednesday sold a $1bn five year public sector Pfandbrief at 50bp over dollar mid-swaps, although the deal was targeted at US accounts in addition to being Reg S eligible. Münchener Hypothekenbank in July sold a $500m three year mortgage Pfandbrief in Reg S format at 63bp over dollar mid-swaps, and that is said to be trading at around 38bp over. The issuer in early September sold a Eu500m five year public sector Pfandbrief at 14bp through euro mid-swaps, and this was said to be trading at 10bp-12bp through.

No new euro benchmark covered bond has hit the market since 25 September, and syndicate bankers today (Monday) said the pipeline is thin to empty. Norway’s Terra BoligKreditt will next Monday (22 October) start a one week roadshow, but no other primary market related projects are otherwise said to be underway or in preparation.

“There’s no obvious funding window that one has to absolutely take advantage of,” said a syndicate official. “Nothing’s coming but at the same time the supply isn’t really being missed.”

Another syndicate official said that there were good two-way flows in the secondary market with some sellers taking profit but a strong bid still in evidence, with spreads therefore not coming under pressure.

The euro senior unsecured market has instead been more active than covered bonds, with Crédit Agricole, F. van Lanschot and Intesa Sanpaolo last week printing deals (but Bank Austria and Banco Popolare pulling theirs), and BPCE this morning out with an April 2018 fixed rate issue. Sole lead Natixis was marketing this with initial price thoughts of the 105bp over area.

“The gap between senior and covered bonds spreads has really come down in recent weeks,” said a syndicate official, “and issuers are trying to re-equilibrate the stock of senior debt versus covered bonds for asset encumbrance reasons.”

Senior deals in euros for Achmea, SpareBank 1 SMN and The Co-operative Bank are in the pipeline, according to another syndicate official, with ASB Finance Limited working on a sterling FRN.