Pbb priced a Eu500m three year Pfandbrief at mid-swaps flat today (Tuesday), drawing strong demand despite the deal coming with what is the second lowest coupon of the year. Finland’s Ålandsbanken has mandated for euro investor meetings.

Leads Commerzbank, Deutsche Bank, HSBC, LBBW and WGZ announced the Deutsche Pfandbriefbank (pbb) transaction yesterday (Monday) afternoon, and went out with initial price thoughts of the low to mid-single-digits over mid-swaps this morning. This generated Eu950m of indications of interest, according to a lead syndicate banker, with orders “exploding” thereafter, when the order books were officially opened on the basis of guidance of the 1bp over area, plus/minus 1bp.

More than Eu1.7bn of orders were gathered, and the leads priced the Eu500m no-grow mortgage issue flat to mid-swaps.

A syndicate official at one of the leads said that the re-offer spread is “a great result”, adding that this is the level that the leads were targeting, with some investors having early on indicated limits of 1bp over, and knowing that sub-Libor pricing would be difficult.

The leads decided to put a range on the guidance to indicate that mid-swaps flat would be the tightest level, and also because the guidance was a relatively large move from IPTs of the low to mid-single digits over, he said.

Pbb’s new issue, a Hypothekenpfandbrief, comes with a 0.25% coupon, thought to be the lowest on a euro covered bond benchmark this year besides a Eu500m 15 month public sector backed Pfandbrief for Landesbank Baden-Württemberg in February.

“It’s weird to look at,” said the pbb lead syndicate banker.

A syndicate banker away from the transaction said that the leads had taken the right, “slightly more conservative” approach. He said that although the level could be seen as “slightly cheap”, pricing through mid-swaps is a challenge and apparent premiums versus secondary market levels have to be taken with a pinch of salt when it comes to Pfandbriefe.

Outstanding pbb Pfandbriefe and a Landesbank Hessen-Thüringen (Helaba) May 2017 issue served as comparables, according to the lead syndicate official, who put pbb July 2017s and August 2018s at 4.5bp through and 2.5bp over, respectively. The Helaba May 2017 Pfandbriefe, meanwhile, were at 15bp through, after having been tapped two weeks week at 10bp through, according to the banker.

He said that the demand for pbb’s new issue was similar to that for the Helaba increase, which was a positive surprise.

Helaba on 21 August added Eu500m to a Eu500m May 2017 issue that was first launched as part of dual tranche transaction in May. More than Eu800m of orders were placed for the increase.

Pbb’s transaction is only the seventh three year benchmark from a German Pfandbrief issuer this year, including taps. The lead syndicate banker said that the response for the Helaba tap provided an impetus for today’s three year transaction for pbb, noting the greater pricing tension achieveable in the event of such strong demand.

Eighty accounts participated in pbb’s issue. Germany was allocated 47.2%, Asia 23.6%, the UK 9%, Austria and Switzerland 8.8%, Nordics 6%, central and eastern Europe 2.4%, and others 3%. Banks took 24%, funds 33%, central banks and official institutions 38%, corporates 2.6%, and insurance companies 2.4%.

Finnish issuer Ålandsbanken, meanwhile, will be holding euro investor update meetings next week with Commerzbank and Danske Bank. The CBR understands that the issuer will explore a euro issue, subject to investor feedback and market conditions, but that given its size a deal would be for less than Eu500m.

The issuer made its euro debut in September 2012, with a Eu200m dual tranche issue; its most recent euro deal was a Eu100m long five year that came at 38bp over mid-swaps in early December.