LBBW benefitted from a lack of Pfandbrief and shorter dated supply to attract over Eu2bn of orders for a Eu750m long five year issue today (Tuesday), which is set to be priced with a positive yield. Further issuance is foreseen in “massively supportive” conditions, but tomorrow may be the only window.

The new issue for Landesbank Baden-Württemberg (LBBW) is the shortest dated German Pfandbriefe since a Eu500m three year for Berlin Hyp on 8 March that was the first negative yielding covered bond. With rates low, most Eurozone issuers have in recent weeks opted for longer dated deals, while German supply overall has been relatively limited, with only MünchenerHyp, Deutsche Pfandbriefbank and HSH Nordbank selling benchmark deals in April.

Leads ABN Amro, Crédit Agricole, HSBC, LBBW and Lloyds launched the new November 2021 mortgage Pfandbrief with guidance of the flat to mid-swaps area. Guidance was then revised to the minus 2bp area and the size fixed at Eu750m, on the back of more than Eu1.5bn of orders, before the spread was fixed at minus 4bp with books over Eu2bn.

“It’s a strong response,” said a syndicate official at one of the leads. “It’s clearly supportive that there’s been rather limited supply in Pfandbriefe recently, and not very much overall in the five year part of the curve, which hasn’t been in favour with issuers.

“That is what’s driving this demand.”

The lead syndicate official said the deal would be priced with a positive yield.

“It will definitely be in the positive territory,” he said. “The swap rate still gives us a few basis points to work with.”

Syndicate officials at and away from the leads said the deal offered a new issue premium of 2bp-3bp, seeing German Pfandbriefe in the long five year part of the curve at minus 7bp-6bp, bid.

Bankers away from the deal said the spread therefore looked generous at the initial guidance.

“But they’ve tightened the spread quite a bit on the back of that good demand, and now the premium, at around 2bp, looks more like the norm for this kind of deal,” said one.

Bankers said that further issuance this week will be interrupted by public holidays in Germany and other European jurisdictions on Thursday, after supply was yesterday (Monday) limited to a sub-benchmark debut for The Mortgage Society of Finland (see separate article) while the UK also had a public holiday.

“With many players out of the office on Thursday, it seems likely that Wednesday will be the last window for issuance this week,” said a syndicate official. “At the same time, it is obvious that anything you put on screens at the moment goes well, so I would not be surprised to see more issuers make use of this massively supportive environment tomorrow.”

Another banker agreed.

“At the moment, it feels like the second you put something on screens it is already comfortably subscribed,” he said. “There hasn’t been so much financial institutions paper for investors to get their hands on in the last few sessions, so right now, everything works.”