Deutsche Hypo secured more than Eu1bn of orders this (Monday) morning for a Eu500m no-grow five year Pfandbrief, its first new benchmark issue in 12 months, with the mortgage-backed covered bonds’ Aa2 rating contributing to pricing of 1bp over mid-swaps.

Leads Deka, DZ Bank, HSBC, NordLB and UniCredit went out with initial price thoughts of the low to mid-single-digits over mid-swaps area. After collecting Eu750m of indications of interest, they set guidance at the 2bp over area. The spread was then fixed at the tight end of guidance, at 1bp over, with orders exceeding Eu1.4bn for a Eu500m no-grow five year deal.

Syndicate officials away from the leads said that a spread of 1bp over indicated a new issue premium of 4bp-5bp, based on an October 2019 trading at 4bp-5bp through mid-swaps. That benchmark was Deutsche Hypothekenbank’s last, a Eu500m seven year issue sold in June 2013.

One added that the new issue was a success and that while he felt it could have been priced tighter, the leads had probably been conservative in their approach to pricing.

Deutsche Hypo announced the mandate for its deal on Friday, after which syndicate officials had expressed differing expectations as to whether pricing through mid-swaps could be achieved.

A syndicate official at one of the leads today said that a spread inside mid-swaps was never an aim for the deal, noting the influence that the rating of Deutsche Hypo’s covered bond had on the leads’ approach to pricing.

“This Pfandbrief has a Aa2 rating, which means some investors are not able to partake in the deal,” he said. “As such, we were aware we would not be able to price through mid-swaps.”

He said that the Deutsche Hypo October 2019 Pfandbrief, trading at 5bp through mid-swaps, and a June 2020, trading at 1bp over, had been used as comparables, which pointed to a new issue premium of 4bp for today’s deal.

A syndicate official away from the leads today said that the pricing on Deutsche Hypo’s deal was “right in line” for German Pfandbriefe.

“Everything is so squeezed on secondary that it does not make sense to go tight,” he said. “It would probably just end up putting off investors.”