Aareal priced a Eu125m increase of a June 2017 mortgage Pfandbrief at 1bp through mid-swaps today (Wednesday), the second time that euro benchmark supply has come inside Libor this year, but a banker on the tap said it was not a “real test” of investors’ stance on negative spreads.

The underlying issue was a Eu500m 1.375% deal launched at 20bp over in June 2012. The tap was priced 21bp tighter, at 1bp through mid-swaps, the tight end of guidance of the mid-swaps flat area, via leads Deutsche Bank, DZ Bank, HSBC, LBBW, and WGZ Bank.

A syndicate banker on the transaction said that the increase was strongly subscribed, and that this allowed the leads to price it with a negative spread, although one order dropped out when the level was set at 1bp through.

The increase is the first euro benchmark supply to come inside Libor since Berlin-Hannoversche Hypothekenbank sold a Eu1bn six year mortgage Pfandbrief at the end of January, also at 1bp through, with a negative spread having been seen as testing the limits of investors’ appetite for core paper.

The lead syndicate banker said that investors continue to dislike sub-Libor spreads and that the “zero line” is somewhat “impenetrable”, but that few conclusions about the wider feasibility of pricing in negative spread territory can be drawn from the Aareal tap, in part because of its small size – it was capped at Eu125m – and because the issuer tends to price tight.

“It’s not representative,” he said. “A short dated deal from BNP or ING would be a real test. You can’t learn very much from this tap.”