Deutsche Hypo sold its first benchmark Pfandbrief of the year yesterday (Monday), a Eu500m no-grow five year mortgage-backed deal, and an official at the issuer noted that it attracted strong interest despite low interest rates and geopolitical uncertainty.

Deutsche Hypothekenbank had already tapped the benchmark market this year, with a Eu250m increase of a 2018 mortgage issue in April, but yesterday’s deal is its first new issue.

Leads Deka, DZ Bank, HSBC, NordLB and UniCredit priced it at 1bp over mid-swaps on the back of Eu1.4bn of orders. They had marketed it with initial price thoughts of the low to mid-single digits over, before setting guidance at the 2bp over area.

Jürgen Klebe, deputy head of treasury at Deutsche Hypo, said that the transaction was a success and lived up to expectations, except for the speed at which the order book grew, which was a positive surprise.

“We are pleased with the deal,” he told The CBR. “There was a lot of momentum in the IPT phase, which lasted about an hour, and then the order books were open for just 30 minutes.”

Two main considerations influenced the timing of the deal, according to Klebe, the onset of the summer holiday season in Germany next week and the belief that spreads are unlikely to tighten further in any meaningful way.

“Our experience is that investors are more restrained when presented with spreads below the zero mark,” he said. “We have seen that in our private placements – in a low interest rate environment a spread deduction does not go down very well.”

Deutsche Hypo’s deal is the fifth German Pfandbrief to be priced this month, including a Eu500m Helaba tap, all of which have come in five or seven years, and Klebe said the outcome of these deals also showed that the market environment is positive.

“What is remarkable in our view is that despite historically low interest rates and a not so straightforward geopolitical situation, the deal met with very strong demand,” he added. “We did ask ourselves whether this was the right week to go ahead with a deal but together with the leads decided it was, and the outcome of the transaction shows it was the right decision.”

Deutsche Hypo priced two new benchmark covered bonds last year and Klebe said that he would like to think that the issuer will sell a second new issue this year, too, but that this depends on how new business origination develops.

More than 70 investors participated in the transaction. Germany and Austria took 73%, the Nordics 14%, Asia 4%, Switzerland 3%, Italy 2%, and others 4%. Banks were allocated 47%, asset managers 30%, central banks 18%, insurance companies 3%, and agencies 2%.