WL Bank sold a Eu500m five year Pfandbrief today (Thursday) despite concerns about the primary market after a string of bank deals were pulled, although the German bank did so with fewer than 30 accounts participating and some 60% potentially going to central banks.

A lead syndicate official said that although the issuer had been monitoring the market for some time, the final decision to go ahead with a deal was taken late on, with the mandate announced relatively late yesterday (Wednesday), at around 1630 CET.

“It’s true that the market is definitely softer and weaker,” he said. “We saw that with AIB – it was the right decision not to proceed.”

AIB Mortgage Bank yesterday morning decided not to go ahead with a 10 year benchmark that it had announced the afternoon beforehand, while in the preceding few days ASR, Nomura and Santander Consumer Bank had pulled new issues.

However, it was felt that a WL Bank issue was achievable and leads BayernLB, Helaba, HSBC, Natixis and WGZ this morning went out with guidance of the 12bp through mid-swaps area for the Eu500m no-grow five year issue, and re-offered the paper at 13bp through.

This compared with secondary WL Bank levels of around minus 17bp for its May 2020s and minus 12bp for its September 2024s, said the lead syndicate official, while recently issued Helaba November 2018s were at minus 15bp. He noted that KfW January 2020s were at minus 19bp, while the deal was priced at 15.8bp over the October 2019 Obl at a yield of 0.265%.

According to the lead syndicate official, the order book totalled Eu550m and comprised slightly fewer than 30 investors, with central banks and official institutions allocated 64% of the bonds. Germany’s share – which would include any Eurosystem CBPP3 purchases via the Bundesbank – was 80%, while Asia’s allocation, which might typically include some central bank buying was 4%.

The balance was split 5% to the Benelux, 5% to Switzerland, and 6% to other Europe. Banks were allocated 14%, asset managers 14%, and insurance companies 8%.

“It seems that investors are less and less involved,” said a syndicate banker. “In the first CBPP3 deals we saw 120 plus accounts; now there are fewer than 30 or 35.

“So I’m not sure how to interpret the effect of the programme. It was supposed to help, but they seem to have kicked out two-thirds of the traditional investors, and currently one investor is buying half.”

Joost Beaumont, covered bond strategist at ABN Amro, echoed these sentiments.

“New issue conditions had been very favourable until recently, supported by the ECB,” he said. “However, it seems that the central bank is increasingly becoming the culprit of the market.

“Speculation has risen that the ECB will start buying government bonds, which has made government bonds attractive versus covered bonds. As such, high grade investors might have switched from covered bonds to government bonds or agency debt.”

He noted that the ECB meanwhile seemed selective in its secondary market buying.

The syndicate banker said that of all the new issues launched since the start of CBPP3, only the first two – for Nordea Bank Finland and Credito Emiliano – are trading tighter than re-offer.