HSH Nordbank struggled to build a book for a Eu500m no-grow five year issue today (Thursday), despite offering a positive spread and an attractive pick-up to secondaries, but bankers said the deal’s difficulties were caused by uncertainty over the credit rather than any market weakness.

HSH’s new issue came at the end of a week in which new issues had mostly been well-received, with a Eu500m six year Pfandbrief from Deutsche Hypo yesterday (Wednesday) achieving a Eu800m book and Banco Bilbao Vizcaya Argentaria on Tuesday taking over Eu2bn of orders for a Eu1.25bn long five year cédulas.

After announcing the deal yesterday, HSH leads Commerzbank, Deutsche, DZ, HSH Nordbank and NordLB opened books this morning for the Eu500m no-grow mortgage Pfandbrief with guidance of the 5bp over mid-swaps area, launching the deal without initial price thoughts. The spread was then fixed at 5bp with the book over Eu400m. The leads announced at 11:45 CET that the book was approaching Eu500m before it was closed at 12:15 CET.

“The books are obviously not hugely oversubscribed, if at all,” said a syndicate official at one of the leads, “but it is a trade and there is nothing about it to be ashamed about.”

Syndicate officials away from the leads said the deal appeared to have struggled.

“It is concerning,” said one. “Especially if you assume that around half of those books are made up by the Eurosystem bid.”

The lead syndicate official said CBPP3 allocation “was absolutely in line” with other recent trades.

Bankers away from the leads said they were surprised that the deal had not found greater demand, as the spread looked attractive enough to compensate for HSH’s Aa3 covered bond rating and weaker name.

“Yes, they are not rated AAA and you have to pay up for that, but this still looked fairly cheap,” said one.

Syndicate officials noted that recent Pfandbrief issues had all been priced tighter, while also in many cases being longer dated. The last three German Pfandbriefe were all priced at 8bp through mid-swaps, including an apoBank Eu500m long five year on Wednesday of last week and Deutsche Hypo’s Eu500m six year yesterday.

Some syndicate officials said fair value for HSH’s new issue was in the minus high single-digits, seeing HSH October 2021s at minus 10bp, mid, and Aa1 rated Deutsche Pfandbriefbank five years at around minus 15bp.

“That would mean a premium of over 10bp,” said one, “which is more in line with peripheral issuers than what we’ve seen from core names in the last few weeks.”

Another syndicate official however said the deal offered a new issue premium of around 7bp, seeing HSH 2019s and 2021s quoted at 4bp through mid-swaps, bid, pre-announcement. He noted this was more in line with other recent core deals.

“You would have thought a German Pfandbrief with a positive spread would have found more interest, regardless of the rating,” he added.

The lead syndicate official said that the premium was around 8bp-10bp, depending on whether mid or bid levels were used.

Syndicate officials said that there was not much that other German issuers and the wider market could interpret from HSH’s result, as they believed the limited demand related specifically to the issuer.

“At plus 5bp this feels like it should be juicy enough, but it seems there is just not enough demand for a name like HSH right now,” said a syndicate official. “This might not be a name that appeals to everyone, but it should not cause so much worry.

“In the end, this is definitely more of a credit issue than a market issue.”

HSH has issued two other benchmark covered bonds this year, the first a Eu500m three year ship Pfandbrief in February and the second a Eu500m seven year mortgage Pfandbrief in June.

Syndicate officials said that they do not expect any further euro issuance tomorrow, but added that the current rate of supply is likely to continue next week, with CCDJ and Deutsche Bank SAE having completed roadshows.