DG Hyp today (Thursday) took over Eu1.2bn of orders for a Eu500m nine year Pfandbrief while offering a relatively low new issue premium in a deal that, coming after a similarly priced trade from Sparkasse KölnBonn yesterday, bankers said shows it is business as usual for German issuers.

Deutsche Genossenschafts-Hypothekenbank (DG Hyp) leads BayernLB, Crédit Agricole, DZ, Helaba and WGZ launched the Eu500m no-grow deal with initial price thoughts of the mid-swaps minus low 10s. Having gathered IOIs of over Eu1bn, they then set guidance at the minus 14bp area, plus or minus 1bp. The re-offer was fixed at minus 15bp, with the books closing at over Eu1.2bn.

A syndicate official at one of the leads said the pricing was a good result, referring to the final level achieved yesterday by a Eu500m seven year issue from Sparkasse KölnBonn, which was priced at minus 16bp.

“Obviously there is some credit differential there, but they are both AAA rated Pfandbriefe and to come just 1bp wider with a deal that is two years longer than theirs is a great outcome.”

The lead syndicate official estimated the new deal offered a new issue premium of 2bp-3bp, seeing the issuer’s July 2021s at minus 23bp, bid.

“The curve is probably worth around 5bp-6bp, putting fair value at around minus 19bp-18bp,” he said. “But even those numbers are probably a bit defensive.”

After some bankers predicted that issuers would have to pay up to launch new benchmarks after four weeks without any such issuance, the lead syndicate official said the deal shows German issuers do not have to pay a large premium.

“They still have to pay something, compared to before the volatility when we saw deals coming at flat,” he added.

However, he noted that German Pfandbrief spreads have remained at around the same level as before the back up in yields, citing a Eu750m 10 year issue from Münchener Hypothekenbank that was priced at minus 14bp on 9 March.

“In absolute levels we are not far off where we were earlier in the year in terms of spreads,” he said.

A syndicate official away from the leads agreed that large premiums are not required for German names.

“It is for other jurisdictions and for longer tenors that you will need to really focus on the premium, and to see what investors need,” he said. “I think for most issuers the market is in a different place to where it was before, but not for the Germans.”

Ralph Rutemöller, responsible for funding and investor relations in the asset-liability management, fixed income department, at Sparkasse KölnBonn, said that a diverse order book and re-offer level of 16bp through mid-swaps for the issuer’s Eu500m eight year mortgage Pfandbrief yesterday (Wednesday) demonstrated the covered bond market to still be in good shape for German issuers.

“We were scheduled to come to the market this week, but you never know,” he told The CBR. “There had been no new issues for four weeks so there was some uncertainty in the market and among syndicate banks as well.

“Considering that, we are very happy with this outcome.”

The deal followed a European roadshow that concluded last Thursday (21 May) and took in Frankfurt, Vienna, Zurich, Helsinki and Luxemburg. Rutemöller said meetings with non-German investors had gone especially well.

The pricing of 16bp through mid-swaps, which bankers noted was in line with the two most recent benchmark German Pfandbriefe – a Eu500m tap of a four year NordLB issue last Wednesday (20 May) and a Eu500m seven year Grüner Pfandbrief from Berlin Hyp that came before the recent volatility on 27 April.

“That is a very good outcome for us,” said Rutemöller. “There was a lot of volatility in between so although the spreads in covereds were very stable over the last month, we were not sure if we’d be able to match that level.

“But our result, and the level of DG Hyp today, shows that the market hasn’t really changed and you don’t really have to pay a higher new issue premium.”

Leads Barclays, DekaBank, Helaba, Natixis and UniCredit built a Eu1.1bn order book with almost 50 accounts participating. Investors from Germany were allocated 56%, the Nordics 25%, the Benelux 4%, Austria 4%, Switzerland and Lichtenstein 3%, Asia 2%, the Middle East 2%, Iberia 2%, France 1%, and the UK 1%. Banks took 50% of the deal, central banks 30% and asset managers 20%

“We are very happy with the demand from abroad,” said Rutemöller. “Of course we had a few orders from Sparkassen and Landesbanks, but there was a strong demand from the whole of Europe.”

“It shows the market is still in good shape for German Pfandbriefe.”

Rutemöller added that Sparkasse KölnBonn intends to continue issuing one euro benchmark covered bond per year. He said the issuer will sell more private placements, having issued around Eu200m already this year.