DG Hyp is planning a Eu500m seven year Pfandbrief, which is expected on Monday, after HSH yesterday (Thursday) priced a Eu500m five year, taking advantage of otherwise limited covered bond issuance to generate strong demand as peripherals widened on concerns over BES.

Deutsche Genossenschafts-Hypothekenbank announced that it has mandated Crédit Agricole, Deka, DZ Bank, Helaba and WGZ Bank to lead manage a Eu500m no-grow seven year Hypothekenpfandbrief, which is expected to be Monday’s business, according to a syndicate official at one of the leads.

The deal will be the first euro benchmark covered bond from DG Hyp since January 2013, when it issued a Eu500m no-grow seven year mortgage covered bond at 3bp over mid-swaps.

The lead syndicate official said that DG Hyp’s covered bond curve is limited as it was absent from the covered bond market for seven years prior to the January 2013 transaction. As a result, he said, relevant comparables would be a Landesbank Hessen-Thüringen Eu500m seven year benchmark priced at 3bp over in May, and a Bayerische Landesbank Eu500m seven year also priced at 3bp over, in June, both of which are trading at around 1bp through mid-swaps.

Yesterday’s transaction marked HSH’s first Pfandbrief benchmark of the year. HSH Nordbank was last in the benchmark covered bond market in September with a Eu500m five year priced at 18bp over. Ralf Löwe, head of funding and investor relations at HSH Nordbank, said that while the bank intends to keep being a regular issuer, it has no fixed plans for its next benchmark covered bond. With this new five year bond the bank is further building out its outstanding Pfandbrief curve.

“We want to remain being a regular issuer, meaning one to two deals a year,” he said.

Löwe said that the bank issued on the back of a strong start into 2014 in its real estate business. He added that the timing proved beneficial once again, as it allowed HSH to capitalise on an otherwise quiet primary market activity and strong investor appetite for Pfandbriefe.

Commerzbank, DZ Bank, HSH Nordbank, Natixis and UniCredit priced the Pfandbrief at 11bp over, having collected over Eu1bn of orders, with 73 accounts involved. The leads had gone out with initial price thoughts of mid-teens over mid-swaps before setting guidance at the 13bp over area after just shy of one hour with more than Eu700m of indications of interest collected.

“The crucial point was to generate the right momentum for the deal,” said Löwe. “We were able to make use of the market environment and strong investor demand from domestic and international accounts and were able to price at the tight end of guidance.”

Löwe said that HSH opted for a five year maturity as it suits the bank’s curve.

“A five year was high in demand and also a good fit for the bank’s internal planning,” said Löwe. “We had a preference for this, and with our existing 2016, 2017 and 2018 Pfandbriefe, it perfectly fits our maturity profile.”

German investors were allocated 80% of the bonds, Asia 8%, the Nordics 6%, the UK and Ireland 3%, and other Europe 3%.

Banks took 70%, fund and asset managers 13%, central banks and government institutions 8%, insurance companies and pension funds 4%, and corporates 4%.

Syndicate bankers said today that spreads in the peripheral markets had recovered this morning after widening yesterday because of concerns around Portugal’s Banco Espirito Santo (BES) and its holding company.

According to a syndicate banker, 10 year Portuguese government bonds widened by 22bp over mid-swaps yesterday. He said that they had tightened from 262bp over mid-swaps at yesterday’s close to 255bp over this morning.

Another banker said that while spreads widened yesterday, there had been little selling of bonds. He added that, given the negative tone of the past few days, the weekend had come at the right time, with the markets able to close on the positive note of peripheral tightening.