Sparkasse KölnBonn today (Wednesday) sold the first new euro benchmark issue in four weeks, a Eu500m seven year Pfandbrief that bankers noted was priced in line with deals launched before the wider market volatility, but which some said has limited read-across value.

The new issue reopened the euro covered bond market after an absence of new deals since 29 April, and had been identified by participants as the first test of market conditions.

The Eu500m no-grow seven year mortgage Pfandbrief was launched via leads Barclays, DekaBank, Helaba, Natixis and UniCredit with initial price thoughts of the 13bp through mid-swaps area. Guidance was set at minus 15bp on the back of Eu900m of orders, before the leads fixed the re-offer at minus 16bp. The order book closed at Eu1.1bn, with 48 accounts participating.

“This is clearly a positive result, especially with this deal being the first to reopen the euro covered market,” said a syndicate official at one of the leads.

Seeing Sparkasse KölnBonn’s April 2020 paper at minus 24bp, mid, and October 2024s at minus 21bp, the lead syndicate official said this would imply that fair value for the deal was around minus 22bp.

However he said the leads did not use the outstandings as comparables, as they are very squeezed and therefore irrelevant, and had instead looked at where the most recent benchmark deals from German issuers had been priced.

He noted that the two most recent benchmark German Pfandbriefe were also priced at minus 16bp – 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.

Syndicate officials away from the deal said the final level was a good outcome, and was in line with expectations.

“Considering this is the first new euro benchmark issue in a month, to tighten 3bp between IPTs and pricing is a decent move,” said a syndicate official. “Around 4bp was the average before this volatility.”

Also stating that there are few valid comparables for the deal, the syndicate official estimated that minus 16bp is not much wider than the deal would likely have come before the recent volatility.

“Spread-wise that is a good result,” he said.

Although he noted that there were no issuers publicly in the pipeline, the syndicate official added that others may be encouraged to return to the euro market.

“If I was an issuer waiting on the sidelines watching this deal, I’d think it was promising that someone out there has got a trade done and done well,” he said.

But another syndicate official said that issuers from other jurisdictions could not interpret much from Sparkasse KölnBonn’s result.

“This is a German Eu500m no-grow Pfandbrief, it is zero risk-weighted, supported by savings banks and the ECB,” he said. “This kind of trade can’t fail. German issuers may consider doing something along the same lines, but I don’t think any non-German name will be motivated by this one.”

“It is at least nice to see a deal working, but this is not a magic trade.”

Issuers may also be hesitant to pay the premium required to come to the market in current conditions, said another banker.

“The problem is covered bond issues aren’t used to paying significant new issue premiums,” he said. “If you look at some of the premiums on offer on the senior market today, of around 20bp, then it is difficult.”

The banker noted that May looked set to have the lowest monthly euro covered bond supply in 10 years.

“I think we are awaiting a repricing of the covered bond market,” he said. “That is still to happen.”