Deutsche Hypo sold its largest Pfandbrief since 2011 today (Tuesday), attracting over Eu1.3bn of orders for a Eu750m eight year issue that bankers said is evidence of covered bonds’ potential, although the majority of new issuance was focussed in other markets.

The new issue for Deutsche Hypothekenbank is the first euro benchmark covered bond since a week ago, when LBBW and OP Mortgage Bank last Tuesday sold Eu750m and Eu1.25bn deals, respectively.

The issuance window was then interrupted by public holidays across Europe, but bankers said conditions nevertheless remained very supportive for more deals, after LBBW’s and OP’s deals were more than twice subscribed despite offering minimal new issue premiums.

“Today Deutsche Hypo have confirmed that the covered bond market is as good as we all thought it was,” said a banker away from the deal. “People are sitting on a lot of cash and they want to put it to work.

“This is a very healthy result.”

After announcing a mandate for an eight year mortgage Pfandbriefe yesterday (Monday) afternoon, Deutsche Hypo leads BayernLB, Natixis, NordLB and UniCredit launched the deal at 9:00 CET with guidance of the 2bp over mid-swaps area, before revising guidance to the flat area, plus or minus 1bp.

The spread was then set at 1bp through and the size fixed at Eu750m, with the book closing at over Eu1.3bn at 10:15 CET.

The deal is Deutsche Hypo’s largest benchmark issue since March 2011, when it issued a Eu1bn three year Pfandbrief.

“Their recent deals have all been fine, but this is one of the German issuers than historically has sometimes been more difficult to place,” said a syndicate official away from the leads. “This is a very decent success for them.

“Deutsche Hypo hasn’t scored a result along these lines for some time.”

Deutsche Hypo’s mortgage covered bonds are rated Aa1 by Moody’s.

“It’s not one of the top tier German names and they do trade a little back,” said a banker away from the deal, “but it’s a name investors are comfortable with, and the Aa1 rating doesn’t look like it caused any problems here.”

Syndicate officials said the deal offered a new issue premium of around 1bp, seeing Deutsche Hypo February 2023s at minus 3bp, bid. They noted this was roughly in line with the minimal new issue premiums paid on core and semi-core covered bond issues in recent weeks.

“Maybe the price looked a bit generous at first, but it was designed well and they drove the spread by 3bp,” said one.

Deutsche Hypo’s new issue takes euro benchmark covered bond supply this month to Eu2.75bn, already surpassing the Eu2.25bn sold in the whole of last May.

Syndicate officials said further covered bond supply is likely this week, but noted the focus was on the busier higher beta and corporate markets, with Deutsche Hypo the only issuer selling a benchmark covered bond today.

National Australia Bank (NAB) was today among three issuers active in the euro senior unsecured market, selling a dual tranche euro-denominated issue.

Syndicate officials had previously said that at least one Australian issuer had been considering launching a benchmark deal in either the covered bond or subordinated markets, after most leading Australian issuers exited blackout periods last week.

“I still think we’ll see a mix of supply this week, certainly with some more in covereds,” said a banker. “Deutsche Hypo’s deal is an encouraging act that people will want to follow.”