Aareal will price a just subscribed Eu500m no-grow five year mortgage Pfandbrief today (Wednesday) after what a lead syndicate official described as a slower than expected response, but one that could not be attributed to the spread having been too tight, as some suggested.

The deal is the fourth euro benchmark covered bond this week, and the third German Pfandbrief in a row, with all deals featuring, or, in the case of a Helaba dual-tranche deal including, a five year maturity in a shift away from the seven year supply that recently dominated issuance.

A Eu500m Helaba five year tranche was priced at 1bp through mid-swaps on Monday, and Commerzbank yesterday (Tuesday) made its public sector Pfandbrief debut with a Eu500m no-grow at 2bp over. Aktia Bank also tapped the market this week. (See separate article for further coverage of the Commerzbank deal.)

After announcing the mandate for a five year mortgage Pfandbrief yesterday (Tuesday) afternoon, Aareal Bank went out with initial price thoughts of the mid-single-digits over mid-swaps this morning. Leads BNP Paribas, Deutsche Bank, DZ Bank, HSBC and LBBW then opened order books with guidance set at the 5bp over area. In an update some two hours later the leads communicated that the spread was set at 5bp for a Eu500m deal, with orders approaching Eu500m.

A lead syndicate official said that the deal is fully covered, but that the order book was not as big as one would have hoped.

“It went a bit slower than expected,” he said. “But it’s a good quality book, just with smaller orders, and there was no pushback.”

He said that one account commented that there had been too many deals this week. The lead syndicate banker suggested Aareal’s issue itself could not be faulted, saying that there was “no real reason” for the slower response but that it being nearly the end of June and the anticipation of today’s FOMC could explain the feedback from investors.

The spread was not too tight, he added, defending the level against outside comments to this effect, with one syndicate official away from the leads saying that he would have gone for the high single-digits as a departure point. This could have paved the way for a re-offer spread of 5bp over, but potentially on the back of better momentum.

“In this market context Aareal went out too tight,” he said. “The issuer should be happy to have crossed the line. At this level the response is not a surprise.”

Another syndicate banker away from the leads said Aareal’s deal was very expensive, and questioned whether the leads were left with bonds on their books, a suggestion that another lead syndicate official on the deal said he could not comment on.

However, another syndicate banker away from the leads did not seem to think the spread inappropriate, although he, too, noted that the deal was meeting with a weak response – contrasting the development of today’s deal with when issuer came to market in January, for example. At that time it increased a Eu500m five year deal to Eu625m, pricing it at 1bp over after initial price thoughts of the 5bp over area and guidance of the 3bp over area.

The syndicate banker said that Aareal was offering a smaller new issue premium than Helaba had on its five year tranche, for example, and that the concession on Aareal’s deal was around 2bp-3bp depending on how the curve extension from January 2018 is valued.

“It looks OK,” he said.

The Aareal lead syndicate official said that the mid-single-digits was not too tight a departure point, with a February 2018 issue quoted flat to mid-swaps and 2017s at 2bp through.

Looking beyond Aareal, the covered bond deal pipeline is fairly well stocked, with Raiffeisenlandesbank Niederösterreich Wien and Caisse Francaise de Financement Local (Caffil) having announced roadshows for the end of the month, and others, like New Zealand’s ASB Bank, having completed investor work. One syndicate official said ASB Bank could be next in line to tap the market.