WL Bank and NordLB lent a distinctly German flavour to primary market-related moves this (Tuesday) morning against a weaker backdrop in credit, with WL set to price a Eu500m three year deal at 11bp through mid-swaps and NordLB announcing an aircraft Pfandbrief roadshow.

WL Bank’s transaction is the first new issue in the euro FIG markets this week given weaker sentiment linked to concerns about emerging markets and further tapering from the Federal Reserve, although the tone in the credit markets is said to be improving.

“There was improvement the back end of yesterday and a bit more positivity overnight,” said a syndicate official. “The retracement is continuing but we’re still back of the tights of the year.”

Covered bond spreads have been stable, however, and Germany’s Westfälische Landschaft Bodenkreditbank (WL Bank) proved undeterred by the weaker backdrop, publicly announcing the mandate for a three year public sector Pfandbrief yesterday (Monday) afternoon. Another new issue project in covered bonds could hit the screens tomorrow (Wednesday), according to a syndicate official.

NordLB, meanwhile, has mandated Commerzbank, DZ Bank, NordLB, Société Générale and UniCredit in connection with a roadshow of its aircraft Pfandbrief programme and a possible subsequent transaction, which would be its second benchmark off the programme.

The first, a Eu500m five year, was priced at 55bp over mid-swaps on 10 July 2012, and is trading at around 12bp over, according to an official at NordLB.

He said that the deal performed very well and that positive feedback from investors, “interesting” market conditions, and collateral availability combined to fuel the issuer’s decision to approach the market again. The investor meetings are due to start at the end of this week, according to the official.

Today’s deal for WL Bank is its first since May, when it sold a Eu500m seven year mortgage Pfandbrief at 1bp over mid-swaps, and the first new euro fixed rate benchmark covered bond this year to come with a three year maturity – so far the shortest-dated supply in euro fixed rate format has been in five years.

Leads Barclays, BayernLB, DZ Bank, NordLB and WGZ Bank will price the Eu500m three year deal at 11bp through mid-swaps after building an order book in excess of Eu850m with some 50 accounts participating, according to one of the leads.

The transaction was capped at Eu500m from the outset and was first marketed with initial price thoughts (IPTs) of the mid to high single-digits through mid-swaps. This generated more than Eu500m in indications of interest, with the leads then setting guidance at the 9bp through area and ultimately deciding on a re-offer spread of 11bp through.

A lead syndicate official said that the three year maturity was chosen by the issuer and that the target was to achieve “reasonable” pricing, which the 11bp through represents. There was little spread sensitivity in the order book, he said, allowing the leads to move from guidance of the 9bp through area to fix the spread at 11bp through.

“It was a good success in not so easy a market,” he said. “The deal offers a quality investment and although the weaker environment didn’t necessarily bolster the transaction it didn’t deter us.”

The demand was more international than one would expect for a WL Bank transaction, he added.

Syndicate bankers away from the transaction said the issuer had obtained a good result, with one seeing IPTs as relatively generous but wisely so because “otherwise it would have gone nowhere” given the tight, sub-Libor levels.

The lead syndicate banker said that the leads were not overly focussed on the new issue premium given that the deal was targeting sub-Libor spreads, but confirmed that they had wanted to avoid setting IPTs too tight.

The deal is the tightest euro benchmark covered bond since November 2012, when Münchener Hypothekenbank sold a Eu500m two year public sector Pfandbrief at 20bp through mid-swaps.

Another syndicate official said that the relevant Pfandbrief curve in three years was at around 20bp through, mid, but suggested that what has been a typical new issue premium for core issuers of 3bp-4bp would not be sufficient for feasible pricing.

“Clearly there is a cap on how deep into sub-Libor you can go,” he said, also noting that the SSA market offers accounts higher yielding investment opportunities without a drop in credit quality.

Berlin Hyp added Eu150m to a Eu100m August 2020 floating rate mortgage Pfandbrief yesterday, with sole lead UniCredit pricing the increase at 10bp over three month Euribor.