Helaba priced its first benchmark mortgage Pfandbrief since 2010 yesterday (Tuesday), a Eu500m five year no-grow issue that was twice subscribed after 45 minutes of bookbuilding, according to a funding official at the issuer, who said that such demand is not a given in the prevailing low yield environment.

The deal is the second euro benchmark covered bond to come through sub-Libor this year, with leads BNP Paribas, Deutsche Bank, Helaba, Natixis and UBS pricing it at 7bp through mid-swaps, the tight end of guidance of 5bp-7bp through after a departure point of the 5bp through area.

A funding official at Landesbank Hessen-Thüringen said that the issuer did not set out to achieve pricing deep in sub-Libor territory, but that it is pleased with the re-offer spread.

Helaba, Frankfurt

“We want to sell a fairly priced deal that has a chance to perform,” she said. “We are pleasantly surprised by the strength of demand, which in this low yield environment is not necessarily a given, and think it underscores the appeal of the Pfandbrief and the success of our deal.”

The deal was priced at 99.898 with a coupon of 0.875% to yield 0.896%, or 39.4bp over Bunds.

A lead syndicate official noted that this is the first time this year that a covered bond has been priced inside 40bp over Bunds – “a spread that even most SSA issuers would dream of” – with deals for Helaba and Terra BoligKreditt (see separate article) yesterday underscoring that a strong primary market bid remains and that tight core country valuations are not only driven by the secondary market.

Another noted that wider swap spreads compared with the tightest levels of the year were lifting the “lower beta spectrum of covered bonds”.

The success of Helaba’s deal comes after a weak reception for a Eu500m mortgage deal from its fellow German Pfandbrief issuer, Deutsche Hypothekenbank, at the end of September as investors pushed back against tight pricing, with a syndicate official noting that Deutsche Hyp’s deal was hurt by a widening of Bund swaps that dragged out German agency spreads.

More than Eu1bn of orders were placed within 45 minutes of bookbuilding for Helaba’s deal, said the funding official at the issuer, with the involvement of 60 accounts making for fairly high granularity for a Eu500m deal.

“Investors from 10 different countries participated, which is good international demand,” she added.

Domestic investors drove the transaction, taking 75% of the bonds, with Austria allocated 7%, Asia 5%, Switzerland 4%, France 2%, Hungary 2%, Denmark 2%, and others 3%. Banks were allocated 46%, asset and wealth managers 27%, central banks 12%, retail 5%, insurance companies 4%, corporates 2%, and others 4%.

A lead syndicate official highlighted as significant the participation of real money accounts given tight pricing and a low absolute yield. The central bank allocation is understood to include participation by the Eurosystem under the covered bond purchase programme, which, based on the one year lifespan it was assigned when announced, is due to end today (Wednesday).

The deal is Helaba’s second euro benchmark covered bond this year, after a Eu1bn seven year public sector issue in April, and, according to the Helaba funding official, completes the issuer’s benchmark funding plan for 2012.

She said the transaction is in line with the issuer’s strategy to use both of its Pfandbrief cover pools and that it would expect, subject to market conditions, to do the same next year.

The issuer had intended to issue two benchmarks this year, she said, and on MOnday awarded the mandate for its second deal in response to positive market conditions.

A syndicate banker on the deal said that the leads announced the transaction early Monday afternoon without initial pricing thoughts, instead sharing trading levels of comparable deals, and that by Monday evening a shadow order book of Eu350m had been built.