DKB and CM-CIC set coupon records for 10 year covered bonds yesterday (Wednesday), DKB recording the lowest overall and CM-CIC the lowest for a non-Pfandbrief. A DKB official said the issuer, though not “euphoric”, is happy with its deal given the associated challenges.

Deutsche Kreditbank’s deal is the second benchmark covered bond for the BayernLB subsidiary this year, after a Eu500m seven year issue in February, and Thomas Pönisch, head of treasury at Deutsche Kreditbank (DKB), noted that it is the first time that the issuer has priced two benchmarks within six months.

“We’re very happy with that because it means we are through for the year,” he told The Covered Bond Report. “We did our homework and can relax and look out for other opportunities.”

The issuer was under no pressure to raise funding, but wanted to take advantage of the prevailing low yield and spread environment and did not want to wait until after the summer, according to Pönisch.

DKB was ready to tap the market last week but decided to hold off until after the European Central Bank meeting, he added. With Monday a public holiday in Germany and other parts of continental Europe, the issuer liaised with syndicate desks on Tuesday and proceeded with a transaction yesterday in response to “OK” market conditions, according to Pönisch.

Leads BayernLB, Crédit Agricole, Deutsche, NordLB and WGZ initially marketed the deal in the mid-teens over mid-swaps before setting guidance at the 14bp over area. They priced the transaction, which was capped at Eu500m from the outset, at 13bp over on the back of more than Eu500m of orders.

The deal came with a 1.625% coupon, which is the lowest coupon ever for a 10 year benchmark covered bond, according to Vincent Hoarau, head of FIG syndicate at Crédit Agricole.

He said that the leads chose IPTs of the mid-teens so that the transaction looked attractive from the outset in swap spread terms, but that the low coupon unsurprisingly limited demand somewhat.

“In the current yield environment a 10 year high quality low spread product isn’t a walk in the park and you can’t expect to have everything,” he said. “But for me it is a very good trade and the issuer got a good result.”

Thomas Pönisch, head of treasury, DKB

Pönisch said that the issuer is not “euphoric” about the transaction but nonetheless happy with it, taking into account the challenge of selling a 10 year Pfandbrief even at the best of times, let alone in a low yield and spread environment.

“We knew a 10 year would be tough, but we did a successful seven year in February and have sold a lot of five years in the past and for the first time wanted to complete a curve,” he said. “Plus, spread levels are very attractive.”

The deal is DKB’s first 10 year Pfandbrief.

Competing supply added to the challenge of tapping the market with a 10 year Pfandbrief, according to Pönisch, who noted that two other 10 year issues were launched yesterday, only one of which DKB had been aware of – for the German federal state of Mecklenburg-Vorpommern.

France’s Crédit Mutuel-CIC was also in the market, with a Eu1bn 10 year mortgage-backed covered bond. (See below for more.)

“We hadn’t seen any 10 year deals for a few days and then there were three on one day, which made it really tough,” he said. “It’s obvious that we had to share some demand from the asset manager side, which are naturally looking for pick-up bonds.

“But we wanted to tap 10 years and got a good deal.”

He highlighted a high granularity of the order book and the level of demand from German savings banks and cooperative banks as positive aspects, noting that although DKB is a subsidiary of a Landesbank its covered bonds do not carry a 0% risk weighting within the savings bank sector.

“That makes it more complicated for us to get savings bank orders, so we are very happy and proud to have almost a 25% share, which is quite a success for us,” said Pönisch.

Forty-six investors participated in DKB’s transaction. Germany took 90%, the UK and Ireland 5%, France 2%, Switzerland 2%, and others 1%. Savings banks were allocated 31%, asset managers 25%, banks 21%, cooperative banks 16%, insurance companies 4%, central banks 2%, and corporates 1%.

CM-CIC in non-Pfandbrief coupon record

Crédit Mutuel CIC Home Loan SFH priced a Eu1bn 10 year covered bond yesterday with a record low coupon for a non-Pfandbrief in that maturity, which was attractive in light of tight French government bond spreads, according to a lead syndicate banker.

Leads Barclays, Natixis, Société Générale and UBS announced initial price thoughts of the high 20s over mid-swaps and later went out with guidance of the 27bp over area. With more than Eu1.5bn of orders collected, the size was set at Eu1bn and the spread fixed at 26bp over.

The coupon on the deal was 1.75%, a record low for a non-German Pfandbrief in the 10 year maturity, according to a syndicate official at one of the leads.

He noted that 10 year French government bonds were for the first time in a long time trading inside 20bp over mid-swaps, and that this was encouraging for a 10 year deal.

“The issuer was ready to issue and wanted to take advantage of what seems to be an attractive market,” he said. “And with French government bonds in the 10 year maturity trading as tightly as they have for a long time, it seemed a good choice.”

Germany and Austria were allocated 47%, Asia 14%, France 13%, the UK and Ireland 7%, the Benelux 5%, the Nordics 3%, southern Europe 7%, and others 4%.

Banks took 35%, asset managers 30%, central banks and public institutions 19%, insurance companies 14%, and others 2%.