HSH Nordbank launched a Eu500m no-grow three year public sector covered bond today (Wednesday), a deal that offered a pick-up over some Pfandbriefe and showed discrimination among German names, according to syndicate bankers away from the leads.

The deal came after a day characterised by a surge in senior unsecured issuance, as BBVA, Crédit Agricole and Morgan Stanley placed “blow-out” senior unsecured issues, said a syndicate banker away from the leads.

HSH leads Commerzbank, DZ, HSH, RBS and Société Générale went out with initial price thoughts in the low double-digits over mid-swaps area, and guidance of 11bp over, before fixing the spread at 11bp over mid-swaps.

A syndicate banker away from the leads said that the deal came with virtually no issue premium, but offered some pick-up versus other German names, and this showed the presence of some differentiation in the German market.

“Some stronger names would place a Eu500m three year deal in deep sub-Libor territory,” he said, “but HSH is considered more of a second tier name so offering some pick-up was the right choice.”

The syndicate banker noted that HSH covered bonds are rated Aa1 by Moody’s and on review for downgrade.

Another syndicate banker away from the leads said that the deal seemed underwhelming, as demand after indications of interest were taken was reported at around Eu400m, “demonstrating limited investor appetite for a double-A rated public sector Pfandbrief”.

He added that guidance at 11bp seemed generous for a German issuer, and possibly indicated some reluctance on the part of investors to be exposed to the underlying credit.

A lead syndicate banker said half an hour before the close of books orders reached Eu700m and that this testified to the presence of investor demand.

HSH’s last deals were a Eu500m four year mortgage covered bond launched in May 2012 and a Eu500m five year mortgage issue launched in March 2012.