A Eu500m seven year deal for HSH Nordbank today (Monday) is set to be priced in the middle of guidance, with bankers suggesting that such pricing on the back of a late book update of less than the targeted amount demonstrates that demand remains low as market volatility prevails.

The German issuer opened the market for the week with its Eu500m no-grow seven year mortgage Pfandbrief after new issues had experienced contrasting fortunes last week, with some shorter dated paper well received as some with longer maturities struggled, and demand declining as volatility increased from late Tuesday onwards.

Leads BNP Paribas, Commerzbank, HSH Nordbank, RBS and UniCredit skipped an initial price thoughts stage to open books with guidance of the mid-swaps minus 8bp area. This level was fixed as the re-offer on the back of books of Eu430m, excluding lead manager interest. The final order book size had not been disclosed by the leads at the time The CBR went to press.

Noting that the spread had not been tightened during execution, syndicate officials away from the leads said demand for the deal appeared to be modest, and they attributed this to challenging market conditions.

“Yes this is a German Pfandbrief, and you would think if anyone could access the market, it would be a German issuer,” said a syndicate official away from the leads. “But this still looked a challenge.

“They are not a tier one name, some investors are on strike, and conditions remain difficult, so it was a gutsy move to launch today.”

However, a syndicate official at one of the leads noted that other recent trades had not tightened from IPTs to re-offer amid the volatile rates backdrop, stating that this was no longer unusual.

“Pfandbriefe are partly isolated from the broader volatility we’re seeing, so we thought this was still an appropriate time to launch,” he added. “Another consideration is that, with uncertainty regarding Greece, it looks like this credit volatility isn’t going away any time soon. If you’re waiting for stability, you might be waiting for a long time.

“This market makes for a different set of issuance conditions now, so considering that, this went well.”

Syndicate officials at and away from the leads saw the new issue as offering a premium of 7bp-9bp, based on the issuer’s secondary curve.

“That is at the upper end of the premiums we have seen in the last couple of weeks and certainly attractive, so you would have expected investors to participate,” said a syndicate official at one of the leads. “But it looks as though issuers are in no rush to buy paper today, and would prefer to wait until tomorrow and see how things lie.”

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 attracted good demand while seven year deals from RBC and SCBC were less well received and priced in line with IPTs last week.

“Three and five year maturities now make a lot of sense,” said one banker. “We’ve seen that anything longer doesn’t work well.”

Today, some syndicate officials away from the deal suggested HSH Nordbank’s new issue might have been better received had it featured a shorter tenor, but acknowledged that not all issuers could follow CFF’s lead.

“A five year tenor would have made more sense,” said one, “but still, with a sizable new issue premium and with a pick-up of around the mid-to-high 20s versus Bunds, there should still be good demand for a deal like this.”

Another syndicate official agreed a shorter tenor might have worked better, but said it appeared the deal would still attract a sufficient order book with the seven year maturity.

“It’s worth remembering that for an issuer, it is a very different proposition launching a three year compared to a seven year,” he added.

HSH Nordbank’s last benchmark covered bond was also a three year – indeed the last such issue in the maturity before CFF’s last week. It sold a Eu500m three year ship Pfandbrief on 3 February.

The lead syndicate official also noted that the seven year deals that struggled last week were not CBPP3-eligible.

“Plus the Pfandbrief market is a different market from the remainder, so this was a different beast.”

Syndicate officials said market conditions remained difficult this week after negotiations between Greece and its creditors failed to reach a conclusion on Sunday. They noted that equities were down 1%, while credit indices were wider.

“That pressure from Greece is continuing, so there is no change since Friday,” said one. “You might as well flip a coin to guess the direction regarding Greece at the moment.”

Some bankers said they still expected one or two further deals to be launched this week, and added that issuers from various jurisdictions were looking at the market.

“Technicals remain good, with a high redemptions supporting new issuance, so the market is certainly not closed,” said one.

Another banker agreed, but said the window for issuance this week is a narrow one, citing a Federal Reserve meeting on Wednesday and a Eurogroup meeting on Thursday.

“But if an issuer is willing to pay up they can get a deal done, and if they believe things are only going to get worse in the coming weeks then it makes sense to offer that premium and go now,” he added.

However, other syndicate officials said that with uncertainty remaining around Greece, they would be surprised if any issuers come to the market this week.

“People will be watching to see how HSH Nordbank’s deal ends up in terms of the final book, and they will be waiting for any improvement in the market,” said one, “but if things stay as they are it is very difficult to see more trades being done.”

On the secondary market, bankers said bonds from core issuers appeared weaker as of this morning.

One said he saw pressure on medium dated core tenors from jurisdictions such as France and Belgium, in particular. He added that most of the deals launched last week appeared to be trading at around re-offer, with RBC’s Eu1bn issue, which had been priced at 2bp over mid-swaps on Wednesday, looking more stable at around 5bp-6bp, after having earlier been 4bp wider.