HSH Nordbank “played it safe” to sell a Eu500m five year Pfandbrief today (Wednesday) that bankers deemed a decent result given some investors’ issues with the credit. They said the stability of covered bonds should attract more issuers this week, even if senior has been in focus.

After five successful euro benchmarks totalling Eu4bn were brought to the market in the first two days of the week in the first prolonged window of stability in February, HSH’s Eu500m issue was the only one in the market today.

HSH leads Commerzbank, Deutsche, DZ, HSH and Natixis priced the Eu500m no-grow five year public sector Pfandbrief at 18bp over mid-swaps, in the middle of guidance, on the back of around Eu600m of orders.

“This went well,” said a syndicate official at one of the leads. “The deal is selling comfortably with around Eu600m of demand, and we are pleased with the outcome.

“In the end we had the floor to ourselves, which was great for a deal like this.”

Syndicate officials away from the deal said the relatively modest demand for HSH’s new issue, after recent trades attracted higher levels of oversubscription, was due to investors’ concerns regarding the credit, rather than a weakening of market sentiment.

“It’s not exactly a stellar deal or a blow-out – like some of the deals we’ve had so far this week – but this is always a tricky issuer,” said one. “The market’s good, and it was the right kind of day for HSH to do this deal.”

Syndicate officials said the deal offered a new issue premium of around 5bp, seeing HSH’s mortgage-backed November 2020s at 11bp-12bp, bid. They noted that HSH Nordbank had no benchmark public sector Pfandbriefe outstanding, but said that mortgage and public sector issuances tend to trade in line in Germany.

“The premium is a touch more generous than the other Pfandbriefe we have seen this week, but HSH rightly decided to play it safe,” the syndicate official said. “HSH are not the easiest to sell, as some investors still seem to have line constraints regarding this name, so we left a bit on the table and in the end the 18bp level was exactly right.”

Eu500m Pfandbriefe sold in the last week by LBBW, Deutsche Hypo and Berlin Hyp were each deemed to have paid smaller new issue premiums, with a Eu1.25bn long four year for Helaba yesterday seen as an exception, due to the bond’s low yield and larger size – it was the biggest German Pfandbrief since 2011.

Syndicate officials away from the leads agreed that the pricing of HSH’s deal was appropriate.

“The level of 18bp may look elevated,” said one, “but it reflects the differential between HSH and most other German issuers on the secondary market.”

Syndicate officials said conditions are expected to remain supportive for further covered bond issuance this week, but noted that supply was being weighted towards the senior market, with Santander and SEB each selling new issues today.

“Covereds are continuing to go smoothly, but all eyes are on senior today,” said one.

However, another syndicate official said the covered bond market still offered less volatility and execution risk, noting that today SEB announced its long five year senior issue at the 80bp over mid-swaps area, the same level at which Nordea printed a seven year issue earlier this week.

“If you’re looking for a reason to influence issuers to move towards the safety and stability of the euro covered bond market,” he said, “then that volatility in senior is the sort of noise one would be making.”