Berlin Hyp launched the first sub-Libor benchmark covered bond and first jumbo Pfandbrief of the year today (Tuesday), a Eu1bn five year that bankers away from the leads said looked a tough sale, citing subdued interest in tightly priced core supply.

Leads Barclays, Crédit Agricole, JP Morgan, Landesbank Berlin and UniCredit priced the deal at 1bp through mid-swaps, after having gone out with initial price thoughts of the mid-swaps minus the low single-digits area.

This is the tightest re-offer spread for a benchmark covered bond since 26 November, when Münchener Hypothekenbank sold a Eu500m two year public sector Pfandbrief at 20bp through.

Syndicate bankers away from the leads said that today’s deal for Berlin-Hannoversche Hypothekenbank progressed only slowly.

“It looks like investors are not really keen on it,” said one.

Some suggested this was due to the negative spread.

“The market made it clear that it was impossible, or almost impossible to price in negative territory,” said one.

He added that in previous German Pfandbrief transactions this year levels approached flat to mid-swaps, but that avoiding the sub-Libor area had been the right move.

“Aareal could have priced through Euribor, but investors made it very clear that it was not something desirable,” he said.

Aareal Bank priced a Eu500m five year deal at 1bp over mid-swaps on 14 January.

Sub-Libor levels were also avoided by Deutsche Hypothekenbank when it launched a Eu500m five year deal that was priced at 1bp over on 15 January. An official at the issuer told The Covered Bond Report at the time that the five year maturity had been targeted in part because a shorter dated deal may have entailed a spread inside mid-swaps, and this “is not going to increase your placement possibilities”.

Another syndicate banker away from Berlin Hyp’s deal said that the transaction looked challenging.

“The lesson learnt,” he said, “is that sub-Libor is difficult even for a German Pfandbrief issuer.”

However, the syndicate banker added that despite being tight, the pricing was fair considering Berlin Hyp’s secondary curve, which was “very expensive”.

Another syndicate banker away from the leads noted that the re-offer spread was set fairly early in the transaction, and that this had been the right approach.

The deal is the fourth five year German benchmark since the beginning of the year, but only the first to be sized at Eu1bn, with the new issue having been marketed as a jumbo from the outset.

The sub-Libor spread in combination with the Eu1bn size was seen as “overstretching things” by another syndicate banker away from the leads.

“It was a bit too much, slightly overambitious,” he said.

“People like the name and the product, and honestly it is a bit of a shame,” he added.

The Eu1bn size was said by one syndicate banker to be targeted to attract investors.

“The true benchmark size has a bit of a sex appeal,” he added.

Another syndicate banker said the transaction was launched into a challenging market for tightly priced deals from core jurisdictions.

However, he did not question the choice of coming to market today.

“But you can never know how it could go, so maybe ex-post you could say, ‘ok, it wasn’t a smart move’, but not beforehand,” he said.

Berlin Hyp’s last issue dates back to May 2012, when it sold a Eu1bn no-grow five year deal that was priced at 9bp over mid-swaps.

The leads did not respond to requests for comment in time for publication.

Meanwhile, a Commerzbank funding official told an IFR covered bond conference in Frankfurt today that the issuer is digesting feedback from a roadshow for a new SME loan-backed structured covered bond programme, according to @Coveredbondgal. Some market participants had expected the deal to have come out by now.

The German bank is also set to inaugurate a new Pfandbrief programme in the second half of 2013, said the funding official.