Sparkasse KölnBonn sold a Eu500m 10 year mortgage Pfandbrief at mid-swaps flat on Tuesday and an official at the issuer said that it was happy to have been able to take advantage of the technical supporting the covered bond market to add a 10 year point to its curve at a tight level.

After announcing the issue on Monday afternoon, leads DekaBank, Helaba, HSBC, LBBW and UniCredit opened books on the Eu500m 10 year deal at the mid-swaps plus 1bp area on Tuesday morning some 45 minutes after having gone out with initial price thoughts of the mid to low single-digits and attracted some Eu1.2bn of interest. Books were then closed 30 minutes later at over Eu1.7bn, excluding joint lead manager interest, with 86 accounts involved, and the deal was priced at mid-swaps flat.

Ralph Rutemöller, responsible for funding and investor relations in the asset-liability management at Sparkasse KölnBonn, said he was very happy with the outcome of the deal, with the pricing putting the issuer among the tightest German names.

“A few weeks ago we saw WL Bank issuing 10 years at mid-swaps flat as well, and it was pretty much my goal to see if the demand was there for us to achieve mid-swaps flat,” he said. “That’s also what we discussed with investors on the roadshow last week, that we expected the deal to be in the very low single-digits or mid-swaps flat, and that it would not be in minus.”

A syndicate official at one of the leads had said yesterday that the issue could have been priced through mid-swaps if the issuer had not taken such a stance. Rutemöller said investors’ views on pricing was one of three factors that played into the choice of a 10 year maturity, with seven and 10 year deals having been options for the issuer.

“In seven years you already have minus spreads to mid-swaps and from the feedback we received on the roadshow it is clear there are a lot of investors out there that are not willing to invest in bonds priced through mid-swaps,” he said. “Meanwhile, we have been talking about building a curve and as our one benchmark outstanding has a remaining life of 5.5 years it made sense for us to issue in the longer maturity, 10 years.

“That was especially true in this good market environment,” he added. “You are not always able to issue a benchmark in the 10 year segment so we wanted to use this opportunity to build out our curve.”

Sparkasse KölnBonn returned to the euro benchmark market in April 2013 for the first time since 2008 and Rutemöller said that the issuer had then indicated to accounts that it would become a regular issue, doing one benchmark mortgage Pfandbrief a year.

“As a Sparkasse, a small bank compared with other Pfandbrief issuers, we really try to broaden our investor base by doing a roadshow at least once a year to get the name Sparkasse KölnBonn more well known and popular in other countries that are investing in Pfandbriefe,” he said.

“We have to refinance pretty constant volumes in the coming years and we will mainly do this by issuing Pfandbriefe.”

The issuer had therefore been planning a benchmark for this year, with the second half in mind, although Rutemöller said that the issuer was somewhat fortuitous in its timing.

“Of course you could not have expected the ECB to announce a third covered bond programme, so we were also a bit lucky concerning the timing,” he said. “But what was clear from the beginning of the year is that we have negative net supply in Pfandbriefe and that a lot of banks are searching for LCR assets, so we were already pretty confident that we should be able to do a seven or 10 year bond with lower spreads than last year.”

Rutemöller said that, in light of the strong demand for its new issue and its broader goals, allocation was a challenging process.

“We could easily issue only in Germany, but we want to widen our investor base,” he said. “On the one hand we of course had good demand from Sparkassen, but on the other hand we can also see that we got demand from the Benelux, Scandinavia and elsewhere.

“We had to take care that the foreign accounts received good allocations, but at the same time we are a Sparkasse and we also have to take care that Sparkassen and Landesbanks were treated well, too. We wanted be fair to all of them — which is difficult when you have an order book of around Eu2bn including lead manager interest.”

Banks were allocated 42.6%, funds 28.7%, savings banks 1.7%, insurance companies 8.6%, central banks 8%, and corporates 0.4%. Germany and Austria took 73.1%, Scandinavia 8%, Asia 7%, the Benelux 5.5%, Switzerland 2.2%, central and eastern Europe 1.8%, the UK 1.2%, Italy 1%, and others 2%.