MünchenerHyp defied low expectations for the market to print a Eu500m six year Pfandbrief yesterday (Tuesday), and an official at the issuer said the result was a good one, while tighter spreads achieved by its recent trades are no longer attainable after substantial market widening.

Münchener Hypothekenbank’s deal was the first euro benchmark covered bond of the week and arrived amid relatively stable broader conditions, but bankers had previously expressed doubts about the market’s ability to digest new issuance after a month of heavy supply and widening spreads.

Rafael Scholz, head of treasury at Münchener Hypothekenbank, said the issuer decided to press ahead with the deal on Tuesday because it is not clear that a better issuance window will arrive this month.

“When we discussed the project yesterday morning we felt that the market situation was not too bad,” he said. “We weren’t in a rush to do the deal, but we do not expect the market environment this month to get much better, or be as good as it was at the start of September.

“So we could have waited, but we can say now that the decision to go ahead was the right one.”

The Eu500m no-grow November 2021 mortgage Pfandbrief was priced at 10bp through mid-swaps, attracting final orders of around Eu750m, according to Scholz. Leads BayernLB, BNP Paribas, Citi and DZ Bank had launched the deal with guidance of the minus 8bp area, skipping initial price thoughts.

“Considering recent high supply and increased uncertainty in the market, we can be happy with that,” said Scholz.

He noted that with the new deal – MünchenerHyp’s fourth euro benchmark of the year – the issuer could not match the spreads achieved in its preceding trades. MünchenerHyp earlier this year sold three Eu750m issues: a 10 year that came at 14bp through mid-swaps in March, and an eight year in June and a long five year in July that were both priced at 17bp through.

“But personally, I believe those spreads are gone,” he said. “I doubt we will see those kind of primary market levels again for some time.

“Right now, in this market, there is no reason to be disappointed with this price.”

Some 30 accounts were present in the final order book, with central banks taking 48% of the deal, banks 34.4% and fund managers 17.6%. Accounts from Germany were allocated 85.3%, the Nordics 8%, the UK 5.9% and others 0.8%.

Scholz noted that allocations to Germany were higher than is usual for MünchenerHyp – with the German share of its last three benchmark deals ranging from 68.8% to 72.7% – but said the deal had been well received.

“That oversubscription is nothing record-breaking, but those books are fine,” he said, “and they should support the deal well on the secondary market.”