Berlin Hyp, Deutsche Hypo and Stadshypotek heralded a resurgence in euro covered bond issuance today (Monday), each jumping on a supportive open to sell seven year benchmarks totalling Eu2.25bn. Bawag is expected to follow with a six year issue tomorrow.

LBBW on Friday launched the only benchmark covered bond of last week, using a window of stability at the end of a volatile week to take over Eu1.5bn of orders for a Eu500m six year Pfandbrief. Syndicate officials said the encouraging reception of the deal showed that strong demand remained for the safe haven of covered bonds while conditions are volatile.

Market conditions improved further on Friday, on the back of a rebound in oil prices and an announcement by Deutsche Bank of plans to buy back Eu5.5bn of senior debt. Bankers said the upturn continued this morning, when European equities opened up 2.5%-3%.

“What gave us a little bit of comfort already was the well executed deal of LBBW on Friday, and then it was a weekend without any new horror stories,” said Bodo Winkler, head of credit treasury and investor relations at Berlin Hyp. “So when we saw this morning Asia develop well and there was no bad news from these markets, we said it might be the right time to issue.

“And you have to bear in mind that these days issuance windows are getting smaller and smaller, more a matter of days than weeks.”

After having announced its deal on Friday, Berlin Hyp leads Commerzbank, Deka, JP Morgan and UniCredit this morning launched the Eu500m no-grow seven year Pfandbrief with guidance of the 2bp over mid-swaps area, before fixing the spread minus 1bp. The book closed at Eu1.4bn.

“We are positively surprised that it developed that well,” said Bodo Winkler, head of credit treasury and investor relations at Berlin Hyp.

Winkler said that the deal succeeded in spite of the competing supply, which he deemed not unsurprising given the issuance window-driven market. He said that the seven year maturity fits well with Berlin Hyp’s lending business, and that is choice also reflected market considerations.

“With the development of yields, if you look at swaps, one maturity after another has gone negative, so issuing a five year already means taking into account that it could come with a negative yield, which we haven’t yet seen on a benchmark covered bond,” he said.

This therefore meant looking at something beyond five years, with seven years judged the best compromise given the wider investor base than in 10 years, where bank treasuries are less active.

According to Winkler, international distribution is around 30%, which he said was good news, being higher than that seen on recent Pfandbriefe.

Deutsche Hypothekenbank leads BayernLB, Crédit Agricole, DZ, HSBC and NordLB launched the Eu500m seven year mortgage Pfandbrief with guidance of the 3bp over mid-swaps area, before revising guidance to the 2bp area plus or minus 1bp, will price in range, on the back of over Eu700m of orders. The deal was then re-offered at 1bp.

“It’s pretty encouraging to see that the market can take two Pfandbriefe, each with the same tenor, on the same day and that both have gone pretty well,” said a syndicate official at one of Deutsche Hypo’s leads.

The lead syndicate official noted that Deutsche Hypo’s deal was announced after Berlin Hyp had issued its first book update.

“We were confident that there’d be sufficient appetite for both deals this morning, and when we saw that Berlin Hyp was taking strong demand we decided to press ahead,” he said.

Syndicate officials said fair value for the new issue was around minus 4bp, seeing Deutsche Hypo November 2021s at minus 3bp, bid, and April 2022s at minus 5bp and also citing 2022-2023 paper from Berlin Hyp, Münchener Hyp and WL Bank at around minus 5bp.

Stadshypotek leads Barclays, BNP Paribas, Commerzbank, Danske and Handelsbanken launched the Swedish bank’s seven year issue with guidance of the 22bp over mid-swaps area, before revising guidance to the 20bp area plus or minus 1bp, will price in range, on the back of books over Eu1.5bn. The spread was then set at 19bp, before the size was fixed at Eu1.25bn.

“This is a good outcome, and I think we ticked all of the boxes in terms of our objectives when we announced the deal,” said a syndicate official at one of the leads.

Syndicate officials said the deal offered a new issue premium of around 5bp, seeing Stadshypotek February 2021s and November 2021s at 12bp, mid.

Stadshypotek’s new issue followed successful deals for Swedish peers Swedbank, which printed a Eu1.25bn five year on 3 February, and SEB, a Eu1.5bn five year on 4 February. Both of the five year issues were priced at 14bp over mid-swaps, with Swedbank attracting over Eu2.8bn of demand and SEB over Eu2.4bn.

The lead syndicate official said the spread differential between Stadshypotek’s new issue and the two deals reflected both its longer maturity and a weakening in the market over the last week.

“Obviously the market dynamics have changed and we have seen a weakening in spreads since Swedbank and SEB were in the market,” he said. “With hindsight, this was a very good day to do a deal, but we have seen how quickly markets can turn around and going out early on a Monday you need to offer a bit more.

“However, thanks to the price dynamics on the day we were able to price the deal with a new issue premium in line with the recent trades.”

The lead syndicate official added that the smaller order book for Stadshypotek also reflected the weaker market conditions, and that there was competing supply in the market.

“All of the accounts that should be in the book are in there, and this deal clearly appealed to the right investors,” he said.

Syndicate officials said that further covered bond supply is likely this week provided conditions remain stable.

“It feels very healthy across the FI spectrum today, with a good resurgence of issuance and a broad range of deals, but the market is still fickle,” said one. “It doesn’t take much for conditions to turn.”

Another syndicate official said, however, that some issuers may make use of improved conditions to enter other markets – with ING and Nordea today active in the senior unsecured market.

“The volatility hasn’t gone away, so covered bonds will probably still be many issuers’ tool of choice,” he said. “But with more activity in senior, some might now take the opportunity to launch higher beta products.”

Bawag PSK is expected to enter the market tomorrow, after this afternoon holding an investor call ahead of a potential euro-denominated six year covered bond. Citi, Erste, JP Morgan, LBBW and UniCredit have the mandate.

The Austrian issuer last sold a benchmark covered bond in September, printing a Eu500m five year issue.