Helaba attracted almost Eu2bn of orders for a Eu1.25bn long four year Pfandbrief today (Tuesday) that is understood to be the first benchmark covered bond to be priced with a 0% coupon. UOB meanwhile announced a roadshow mandate for a possible first Asian euro benchmark.

Syndicate officials had said that the short end of the curve had been closed to German issuers recently, with a fall in rates making it likely difficult to price a Pfandbrief of five years or shorter with a positive yield.

But – after three deals hit the market yesterday for Eu2.25bn, including two seven year German Pfandbriefe, as market conditions improved – Helaba ventured out with its long four year this morning.

Leads Crédit Agricole, Deutsche, Helaba, UBS, and UniCredit launched the November 2020 mortgage Pfandbrief with guidance of the 1bp over mid-swaps area, before revising to guidance of the flat area after having taken orders “well above” Eu1bn. The deal was then re-offered at minus 1bp with books over Eu1.5bn, before the size was fixed at Eu1.25bn. The book closed approaching Eu2bn.

“This went extremely well, and achieved all of the targets,” said a banker close to the deal. “In this environment, with the yield circling around 0%, you need to find the right spot to do something in the 2020 maturity, and in the end we managed to find the right window.”

The deal was eventually priced with a coupon of 0% and a yield of 0.025%. It is believed to be the first benchmark covered bond with a 0% coupon.

The banker acknowledged that a move in rates this morning could have risked the deal being priced in negative territory, but said that they adopted a strategy that minimised the chances of that happening, helped by a positive tone across markets today.

“If that had happened we would have had to work on the spread – that is ultimately the risk that we took,” he said. “We tried to diminish the risk by going with an intra-day execution, and this morning when we came to the screens and saw the market movement overnight we were very comfortable that we would not end up in negative territory.

“If we had felt this morning that we would end up in negative territory, we probably would not have gone ahead. If you are out and the market turns against you then you have to live with it.”

Syndicate officials said that the size of the order book was a highlight of the new issue.

“Getting a book over that size for a Pfandbrief is a good result,” said a syndicate official away from the leads. “This shows the front end of the market is still in very good shape.”

Syndicate officials at and away from the leads said the deal offered a new issue premium of 7bp-8bp, seeing Helaba March 2020s at minus 9bp, mid, and May 2021s at minus 8bp.

“It looks a little generous versus the recent German deals we’ve seen, but the price feels about right,” said a syndicate official away from the deal.

The new issue was priced in line with the re-offer spread of a Berlin Hyp Eu500m seven year issue yesterday, which syndicate officials said was appropriate given the shorter dated deal’s larger size.

“The spread on this one is for me a function of the size,” he said. “In German Pfandbrief you get quite a significant price break for the first Eu500m versus Eu1.25bn, while from a credit and asset quality perspective there isn’t really a meaningful differential between Helaba and Berlin Hyp.”

Bawag PSK was also in the market today (see separate article) and HSH Nordbank today mandated Commerzbank, Deutsche, DZ, HSH and Natixis for a Eu500m no-grow five year public sector Pfandbrief for launch in the near future.

Syndicate officials said other issuers will look to get deals away this week should conditions remain supportive, but noted that supply may be skewed towards other asset classes.

“It’s very positive to see three consecutive stable and productive days, which is something we hadn’t yet enjoyed this month,” said a syndicate official. “But the focus during this window seems to be on the senior market.”

BNP Paribas, Société Générale and Santander were each selling senior unsecured issues today, after ING and Nordea tapped that market yesterday. However, syndicate officials said the strong reception enjoyed by today’s new covered bond issues showed the instrument remains a good option.

“Both of today’s deals are a little exceptional and not so much of a guide for the broader market as the Stadshypotek deal yesterday,” said another syndicate official. “But all the deals so far this week have indicated that risk appetite is increasing steadily in covered bond land, that liquidity is good, and that for issuers that don’t want to pay the requisite senior concessions, covered bonds are an extremely viable alternative.”

Singapore’s United Overseas Bank (UOB) today announced a mandate for a European investor roadshow commencing on 22 February, ahead of a potential euro-denominated benchmark mortgage covered bond. BNP Paribas, Commerzbank, DZ, HSBC, Natixis, UBS and UOB have the mandate.

The debut is expected to be the first Asian euro-denominated benchmark covered bond.