HSH Nordbank issued a Eu500m no-grow five year Pfandbrief in an otherwise quiet covered bond market today (Thursday), while peripheral markets widened on concerns over Portugal’s BES, with Spain’s BPE deciding to postpone an AT1 in response to the volatility.

Peripheral markets came under pressure as a result of concerns around Banco Espírito Santo (BES) and its holding company, with adverse market conditions cited by Banco Popular Español (BPE) in a statement explaining its decision not to proceed with a high trigger Additional Tier 1 (AT1) transaction that was scheduled for today.

“The issuer would like to thank investors for the positive feedback received on the roadshow and indications of interest today, which were sufficient to cover a benchmark transaction,” it said in a statement circulated by the leads. “Due to the heightened volatility in secondary markets, the issuer has decided that conditions are not conducive for primary issuance and subsequent secondary stability at this time.”

A syndicate official at one of the leads said Spanish Tier 2 transactions widened by 30bp-40bp in one hour today. Ten year Portuguese government bonds widened by 22bp this morning, and a Banca Monte dei Paschi di Siena Eu1bn 10 year covered bond had sold off to 161bp over, after having been priced at 148bp over on Tuesday, according to the banker.

“The BES headlines have caused significant peripheral widening, meaning the conditions were not right for new issuance,” he said.

However, he said that he expects the impact on covered bonds to be limited to peripheral jurisdictions.

Another syndicate banker said that he expects the market to readdress itself fairly swiftly.

“This is a case of choppy market conditions in a peripheral space that has enjoyed a long, strong run,” he said. “It is a temporary situation and I expect the overall impact on covered bonds to be limited.”

HSH Nordbank priced a Eu500m no-grow five year mortgage Pfandbrief against the shaky broader market backdrop.

Leads Commerzbank, DZ Bank, HSH Nordbank, Natixis and UniCredit went out with initial price thoughts of the mid-teens over mid-swaps before setting guidance at the 13bp over area after having collected Eu700m of indications of interest. The spread was then fixed at 11bp over, with more than Eu900m of orders having been gathered. According to a syndicate official at one of the leads, the final order book stood at Eu1bn, with 73 accounts involved.

A syndicate official away from the leads described the outcome as a success for a second tier German Pfandbrief issuer. He added that the size of the order book supported a good transaction and allowed the leads to price aggressively.

“Such an outcome was to be expected given the amount of cash investors have,” he said. “They want to use it and are aware that not much is going on, and little else is likely to come up over the next month or so, so they take their opportunities when they can.”

A syndicate banker at one of the leads said the transaction was typical for a German Pfandbrief, noting that the book was dominated by domestic accounts.

“Investors would not look at such a trade were they not into Germany for practical reasons,” he said. “It priced flat to the curve and was an unspectacular success.”

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