Sparkasse KölnBonn launched a Eu500m no-grow seven year mortgage Pfandbrief today (Tuesday) that marked the issuer’s re-entry into the public covered bond market and will be priced – after guidance was revised twice – at a level close to Germany’s tightest names, according to bankers.

Leads Deutsche Bank, DZ Bank, Helaba, LBBW and RBS set initial price thoughts in the low double-digits area yesterday (Monday) afternoon. Books were opened this morning with guidance at 12bp over mid-swaps, which was first revised to 10bp-12bp over, and revised again to 10bp plus or minus 1bp. The re-offer was then fixed at 9bp over mid-swaps, with demand of approximately Eu1bn from 80 accounts, according to a lead syndicate banker.

A syndicate banker away from the leads said that he was surprised by the tight pricing achieved by KölnBonn, given the small size of the issuer. He said that 9bp over mid-swaps is closer to where tight German names such as MüHyp usually price their deals, rather than where wider names such as Deutsche Pfandbriefbank do.

“It was a very ambitious outcome,” he said. “With the deal Sparkasse KölnBonn has positioned itself near Germany’s tightest names.

“This is mainly the result of the lack of supply and the availability of liquidity in the market, as well as investors’ positive inclination towards new names.”

The transaction was Sparkasse KölnBonn’s re-entry into the benchmark covered bond market after an absence of five years, with the lead syndicate banker describing it as similar to an inaugural deal given that the issuer last issued a benchmark in February 2008, a Eu500m five year public sector Pfandbrief that matured in June last year.

According to ING analysts, from an issuer ratings perspective, Deutsche Genossenschafts-Hypothekenbank, Deutsche Bank, Deutsche Postbank and Münchener Hypothekenbank would be the closest comparables.

“The seven year areas on these issuers’ mortgage covered bond curves is on average 2bp (Z-spread bid), indicating that in the case of a pricing in line with guidance the new Sparkasse KölnBonn does offer narrowing potential,” they said this morning when guidance was set at 12bp over mid-swaps.

A syndicate banker away from the leads said that it was unusual to announce a Eu500m no-grow deal the day before, as that size usually allows for intra-day execution. Investors may have also been concerned by the double revision of guidance, he added.

However, he noted that re-offer of 9bp over mid-swaps was a good achievement for Sparkasse KölnBonn and that the deal managed to attract more than Eu1bn of demand.

According to the lead syndicate banker, the execution strategy was not related to any “carefulness”.

“The deal was announced the day before to give investors that were still working on a credit line a bit more time,” he said. “No harm in giving the deal a bit of overnight exposure.”

The double revision of guidance was the result of strong investor demand, he said.

“We thought it was more investor-friendly to give investors another layer of transparency rather than just moving from a wording of low double-digits to plus 9bp,” he said.

Very few accounts were lost in the process, he added.

Some syndicate bankers away from the leads said that Sparkasse KölnBonn made the right decision in targeting the seven year tenor, which was referred to as a “sweet spot” given the steepness in the yield curve.

One noted that KölnBonn’s deal was the sixth seven year transaction since BNP Paribas Home Loan SFH launched a four times subscribed Eu1bn deal that was priced at 22bp over mid-swaps on 10 April.