Deutsche Pfandbriefbank priced a Eu500m eight year covered bond on the back of limited demand today (Tuesday) amid weaker broader market conditions and more reticence among accounts, but the goals for the transaction were achieved, according to the leads.

Commerzbank, Crédit Agricole, Danske Bank, LBBW and Nomura priced the mortgage-backed covered bond at 17bp over mid-swaps, the middle of guidance of the 17bp over area, which followed initial price thoughts of the mid to high teens.

“It was a very smooth process and going to the 17bp area was a natural step,” said a lead syndicate banker.

The final order book was over Eu500m including lead order interest, according to the last update from the leads.

The transaction was announced yesterday (Monday) afternoon, after Aareal Bank and UniCredit Bank Austria met with solid, if unspectacular demand for five year and 10 year covered bonds, respectively. Looking back, it appears that broader market conditions were beginning to turn away from the exuberance that characterised market activity last week, with peripheral senior unsecured deals struggling, equities down and credit markets wider.

“The market puked overnight,” said a syndicate official.

Government and covered bond spreads were, however, relatively unaffected, he added, with the senior unsecured market taking the brunt of the shift and sensibly taking a breather from new issuance.

The market tone’s was already better by this afternoon, however, according to another syndicate banker.

“Things have settled down across the board on the US open,” he said.

Deutsche Pfandbriefbank (pbb) was the only issuer out in the euro FIG flow markets this morning, having decided to open order books following constructive feedback in response to the mandate announcement yesterday afternoon and what were perceived as still supportive though weaker broader market conditions, according to lead syndicate officials.

“We didn’t feel that the market was bad,” said one. “We agreed that the market was not as strong but definitely one where you can print a deal.”

Another said that investors were generally more reticent today than in previous days, and said that some transactions that had been earmarked for today were not launched, although these would have been senior unsecured deals rather than covered bonds.

Syndicate bankers on the deal said that the pricing on pbb’s deal was not at fault for the subdued demand, with one saying it is “more than fair” and includes a new issue concession of 4bp-5bp.

Another lead syndicate official said that the transaction delivered on the goals set for it, with the leads having opted for the relatively unusual eight year maturity to offer another point on the Pfandbrief curve, describing this as having been of “paramount” importance.

“Demand for an eight year was never going to be huge,” he said. “The demand was good, and as expected. The aim was for a good Eu500m deal at 17bp over.”

Another lead syndicate official said that spreads in core covered bond markets are generally very tight, approaching swap spread levels for some “good government names and agencies”, and that this could have played a role in the reaction to pbb’s transaction.

A syndicate official away from the deal earlier this morning did not take issue with the spread on pbb’s deal, although he did say that the turn in the markets would affect the new issue execution process and that issuers would need to be careful about announcing deals a day before opening order books.

A lead syndicate official expressed confidence that pbb’s Pfandbriefe would ultimately be well absorbed in the secondary market, citing a good quality order book, with more real money accounts than in previous, tighter Pfandbrief transactions this year.

Germany and Austria took 60%, the UK 16%, France 9%, Nordics 8%, Italy 3%, Switzerland 2%, and Asia 2%.

Banks were allocated 56%, asset managers 40%, and central banks 4%. Thirty-nine accounts were in the book.