HSH Nordbank on Monday launched a Eu500m seven year deal into a market that an official at the issuer said proved weaker than anticipated, but he said it had compromised to complete the deal ahead of the summer break, noting that he did not expect conditions to improve any time soon.

Ralf Löwe, head of funding and investor relations at HSH Nordbank, said the issuer had been monitoring the market for a while, before, in discussion with its leads, it was decided that the market would be supportive enough to go ahead.

“Based on the general good demand for German Pfandbriefe, the ongoing covered bond purchase programme, and the relative resilience of covered bonds and German Pfandbriefe in particular that has been observed in the secondary market, we had the confidence to go out with a deal,” he said.

“Yes, the market turned out to be slower than we anticipated. Monday was one of the weaker days in the market – that much is now obvious. But at the end of the day, we got it done. Therefore I think that is positive.”

Leads BNP Paribas, Commerzbank, HSH Nordbank, RBS and UniCredit launched the mortgage Pfandbrief – the only benchmark covered bond this week – without an initial price thoughts stage, opening books with guidance of the mid-swaps minus 8bp area, before fixing the re-offer at minus 8bp.

Löwe said that in a more favourable market the issuer would have been aiming for a tighter spread, but stated the price was fair considering the market conditions.

“I think the right price would have been more in the region of minus 10bp,” he said. “But if the market is weak you have to compromise. In the current environment, minus 8bp is a good price.”

The size of the final order book has not been disclosed but at the last update, issued before books closed, orders stood at Eu430m, excluding lead manager interest.

“The final order book is a reflection of the difficult market environment,” said Löwe. “If you look at our previous transactions, all our mortgage Pfandbriefe have been twice oversubscribed.

“That is achievable in a positive market environment, but that is not what we were working in.”

Accounts from Germany were allocated 79% of the deal, the UK 14%, Asia 5%, and EMEA 2%. Real money investors and central banks and agencies took 45%, banks 44%, and fund managers 11%.

Löwe explained that HSH opted to come to the market despite the volatility because, after successfully selling a Eu500m three year ship Pfandbrief in February, it hoped to launch two mortgage Pfandbrief this year and he wanted to complete the first trade before the summer break.

“So then you have to ask yourself: where do I think the market will go from here?” he said. “We expect the market will remain difficult, at least for a certain period of time. And then you have a continuously growing pipeline.

“Considering that, sometimes it is better if you just proceed with a transaction, even if the market environment is difficult, rather than wait.”

Market participants had last week said they expect issuers to opt for shorter dated tenors in prevailing conditions, after a three year CFF issue and a five year from Yorkshire Building Society built oversubscribed books while seven year deals from RBC and SCBC were less well received and priced in line with IPTs as demand declined later in the week.

Some bankers away from the deal suggested that HSH’s deal could have attracted bigger demand if it had been shorter dated, but Löwe said he believed the difference would have been negligible, adding that a seven year trade suited the issuer’s needs better than a five year.

“Looking at our covered bond strategy, we were aiming to complete our curve,” he said. “Having spoken to our syndicates, they felt that there might only be a small advantage in launching a five year issue rather than a seven year, but they said that would not be material.”

Löwe added that HSH would potentially look again at the market after the summer break, and might still issue its second mortgage Pfandbrief of the year.