A juicy pick-up over German Pfandbriefe helped Luxembourg’s NordLB CFB attract buyers to its first benchmark covered bond today (Monday), a Eu500m five year launched without the support of CBPP3. Meanwhile, Caja Rural de Navarra has mandated a seven year euro.

NordLB Covered Finance Bank (CFB) leads Commerzbank, Credit Agricole, DZ Bank, NordLB and UBS launched the Eu500m no-grow five year deal with initial price thoughts of the mid-swaps plus low teens area, before tightening to guidance of the 10bp area on the back of more than Eu900m of interest. The re-offer was then set at 8bp and the deal attracted total orders of more than Eu1.2bn.

A syndicate official at one of the leads said the deal’s limited and relatively small size helped, but put its success down to the pick-up the trade offered over recent deals from core issuers.

“The main positive for investors is that this is a triple A-rated security with a pick-up of around 20bp versus Pfandbriefe,” he said. “Today you’d probably see a new five year Pfandbrief come at around minus 17bp or minus 15bp.”

The covered bonds are rated AA+/AAA by S&P/Fitch.

A syndicate official away from the leads agreed, suggesting investors would have been attracted by the pick-up from German deals.

“It is certainly far off from where they would print a domestic Pfandbrief,” he said.

The lead syndicate official said that there were few useful comparables for the trade, adding that the leads had instead used non-Eurozone triple A-rated trades to help calculate fair value.

He noted that a Eu500m four year Pfandbrief from NordLB – NordLB CFB’s German parent – was priced at minus 18bp on 12 February, highlighting the pick-up on offer.

The main reason for the difference in price was the lack of a Eurosystem bid for the new trade, he said, with the deal not being eligible for the ECB’s third covered bond purchase programme.

While it is eligible for Level 1B of LCRs, the deal is not CRD compliant, and a syndicate official away from the leads noted this would exclude some investors from the deal.

“It’s a good result, though,” he said. “People said that many investors might also have problems with the Luxembourg cover pool, but with this book size that doesn’t seem to have had too much of an impact.”

Lettres de gage publiques can include as public sector collateral assets that are not necessarily guaranteed by public bodies – as is the requirement for German Pfandbriefe, for example – but over which public bodies have a “dominant influence.”

Caja Rural de Navarra is expected in the market tomorrow after having announced leads for a seven year euro cédulas hipotecarias benchmark. BBVA, Crédit Agricole, DZ and HSBC are bookrunners and Banco Cooperativo Español is joint lead.

The Spanish issuer launched its first benchmark covered bond in May 2013, a Eu500m five year deal. According to a banker at one of the new issue’s leads, that June 2018 issue was today quoted flat to mid-swaps, mid. He cited among comparables BBVA January 2022s – which were issued on 12 January – at 3bp over today and La Caixa January 2022s at 6bp over.

The last Spanish seven year benchmark was a Eu750m issue from Cajas Rurales Unidas that was priced at 90bp over mid-swaps on 15 January, while Bankinter issued a Eu1bn 10 year at 38bp over on 27 January that has tightened to 14bp over.

Meanwhile, a core issuer is said to be eyeing the market, a syndicate official said, ahead of possible trades this week. However, he said issuers seem to be again focussing on senior and capital trades.

“The covered bond market and these spreads aren’t going anywhere, so there’s no rush for issuers to launch covered bonds,” he added, predicting than an ECB meeting on sovereign QE on Thursday shouldn’t have too much of an impact on supply.

“They have already pulled out the big bazooka, so I wouldn’t expect too much to change,” he said. “The only question now is when exactly they will start sovereign QE.”