DG Hyp issued a Eu500m no-grow seven year mortgage-backed Pfandbrief this (Monday) morning, generating strong demand, with an order book in excess of Eu1bn, in an otherwise empty covered bond market, with syndicate bankers expecting only opportunistic issuance this week.

Leads Crédit Agricole, Deka, DZ Bank, Helaba and WGZ went out with initial price thoughts of mid-swaps plus the low single-digits for the Deutsche Genossenschafts-Hypothekenbank (DG Hyp) deal. Having collected more than Eu1bn indications of interest, the leads set guidance at 1bp over mid-swaps, before setting the spread at flat to mid-swaps.

A syndicate banker away from the deal said that it had gone “really well”, noting that the leads had been able to achieve such a tight level because there has been a lack of core European covered bond issuance.

“Rarity always helps in these situations,” he said. “Investors have lines at the moment and they like diversity – being able to spread their money around appeals to them.”

Another syndicate banker away from the deal said that it appeared to have been strong from the outset, noting that while most European issuers would stay out of the market today because of the Bastille Day bank holiday in France, DG Hyp would be looking at a largely German investor base.

“German dominance in the order book, plus the inevitable post-World Cup high for Germans, most likely drove this along,” he said.

DG Hyp’s last euro benchmark Pfandbrief was a Eu500 no-grow seven year, priced at 3bp over, which was issued January 2013.

There are limited expectations for further covered bonds this week, with one syndicate banker stating that there is likely to be only opportunistic issuance, despite what he perceives as both a strong market and a receptive investor base.

Spreads in peripheral markets widened significantly last week because of concerns around Banco Espírito Santo and its holding company. A syndicate banker noted that in spite of this, HSH Nordbank was able to price a Eu500m no-grow five year covered bond with little complication.

“The problems in peripherals illustrated that low beta instruments, like Pfandbriefe, remain a healthy option for issuers,” he said.