Aktia and Helaba reopened euro benchmark covered bonds today (Monday), with bankers expecting low beta supply to dominate until a Fed statement on Wednesday. Helaba achieved sub-Libor pricing on the five year piece of its dual tranche deal, which came via nine leads.

Helaba, Frankfurt

Market tone is stronger today than it was last week, after sentiment improved on Friday, but conditions are far from stable, according to bankers. Primary market activity will be dominated by low beta products and issuers as a result, they said, at least until Wednesday when the US Federal Open Market Committee (FOMC) will release a statement.

“The market is OK and you’re going to get German and Finnish stuff, but then we have to sit around and wait for Bernanke to spout off,” said one. “The next couple of days will be fairly low beta names and then we’ll see what happens on Wednesday and whether we can move further along the credit curve.”

Another said that defensive trades are in order, and that peripherals would need to pay “hefty” new issue premiums after substantial selling in the secondary market.

Commerzbank finished a roadshow of its new public sector Pfandbrief programme on Friday, and is seen as a candidate for issuance this week. Aktia Bank was in the market today alongside Landesbank Hessen-Thüringen (Helaba). (See separate article on Aktia’s deal.)

Helaba took the unusual step of launching a dual tranche deal, a rarity in the euro benchmark covered bond market, although a nine-strong lead manager group came in for more comment than the dual tranche format.

Citi, Commerzbank, Danske, DZ, Helaba, HSBC, RBS, Société Générale and UniCredit are joint leads on Helaba’s transaction, which comprises five and 10 year public sector Pfandbriefe for Eu500m maximum apiece.

The five year tranche was investors’ favourite, with a combined order book of Eu1.7bn skewed to the shorter dated issue, according to a syndicate official at one of the leads.

They were able to tighten the spread on the five year tranche from initial price thoughts of the low single-digits over mid-swaps to guidance of the mid-swaps flat area, and then fix the spread at 1bp through mid-swaps. This is the first time a new issue is coming inside mid-swaps since a Berlin Hyp deal at the end of January, which was seen as having struggled in part due to tight pricing.

In contrast to the spread development on the five year tranche, the 10 year issue will be priced in the middle of where it was marketed – it has been fixed at 13bp over following indications of interest in the low teens before guidance of the 13bp over area.

A syndicate official away from the leads said that the 1bp through mid-swaps level on the five year tranche was “really nice pricing” and that it was somewhat surprising that the 10 year tranche came in for less interest given a more attractive spread.

Dual tranche transactions are not unprecedented in the benchmark covered bond market in euros, but have been almost unheard of since the onset of the crisis, even if the format has in the meantime been used in currencies such as US dollars, Australian dollars, Swiss francs and sterling. Syndicate officials away from the Helaba transaction noted that it was not a standard move, but did not otherwise seem to think it noteworthy, instead commenting on the nine-strong lead manager line-up.

“It’s way too many,” said one. “It’s unnecessary. The reciprocity thing is getting out of hand.

“We’ve had six before, but nine is really impressive.”

Another was also critical, saying such a large syndicate group was “begging for disarray” and that it would have been better to split the group across the tranches.