MünchenerHyp sold a $600m three year Pfandbrief on Tuesday, choosing US dollars partly to circumvent deeply negative euro yields, according to the issuer’s deputy head of treasury, while also raising cheaper funding than would have been achievable with an equivalent euro benchmark.

Claudia Bärdges-Koch, deputy head of treasury at Münchener Hypothekenbank, said the German issuer had been monitoring developments in the sterling, Swiss franc and US dollar markets.

“We had plans for each of these currencies, and we had enough in our cover pools so that we could do a deal at any time,” she said. “The sterling market was a no-go after the UK’s EU referendum, but the cross-currency spread in euro-dollars was turning extremely in our direction.

“So, we asked our potential leads for an RFP for a US dollar trade and they said the interest was definitely there. We thought it was a nice and good time to issue a dollar bond, and the outcome really confirms that we were right.”

Leads Barclays, Deutsche Bank, DZ Bank, Goldman Sachs and Nomura launched the three year Reg S mortgage Pfandbrief on Tuesday morning with initial price thoughts of the low 50s over mid-swaps. The spread was then fixed at 48bp on the back of books in excess of $800m, before the size was set at $600m (Eu543m). The book closed at over $900m.

“It was a great deal,” said Bärdges-Koch. “We had books beyond $900m, and 33 orders out of 14 countries.

“We also have many investor names in the book that I don’t think we would have been able to reach via euros. It was a great success.”

Supranationals, agencies and sovereign wealth funds bought 45% of the deal, central banks 24%, banks 19.4%, and fund managers and insurance companies 11.6%. Accounts in Germany were allocated 38.2%, Africa and the Middle East 17.7%, Austria and Switzerland 11.1%, the Nordics 8.3%, Asia 8.2%, central and eastern Europe 7.5%, Italy 5.3%, the Benelux 2.4%, and the UK 1.3%.

Bärdges-Koch said the pricing was equivalent to a spread of six month Euribor minus 10.5bp, and that this was a good result as the issuer would not have been able to place a euro-denominated deal in the market at such a level.

The deal is the tightest dollar covered bond of the year, coming inside a $650m three year Pfandbrief for LBBW that was priced at 51bp on 18 May.

Bärdges-Koch added that prevailing low yields in euros were also a factor in MünchenerHyp’s interest in tapping other currencies, with German Pfandbriefe trading at deeply negative yields into medium maturities.

“In euro terms this was definitely a negative yield,” she said. “Although one issuer has sold a three year negative yielding covered bond already, it is challenging, and I think this equivalent spread is much better.”

MünchenerHyp’s new dollar issue was priced with a coupon of 1.375% and had a yield of 1.382%.

Berlin Hyp sold the first and to date only negative-yielding benchmark euro covered bond in March, a Eu500m three year Pfandbrief that was priced at 1bp over mid-swaps, and had a 0% coupon and a yield of minus 0.162%.

Tuesday’s new issue is MünchenerHyp’s first benchmark dollar covered bond since 2012, when it sold a $500m July 2015 Pfandbrief. LBBW’s deal in May is the only other benchmark Eurodollar issue of the year.

“It has been quite a while since we came to this market in benchmark size,” said Bärdges-Koch. “We had not really added any new US dollar loan business, and at certain stages the cross-currency spread was just not supportive.

“However, we saw the LBBW trade, which was also very successful, and this deal was always on the cards.”

Bärdges-Koch added that MünchenerHyp will return to the market to print at least one more euro-denominated benchmark covered bond this year.

“I would be surprised if we do another dollar this year, but let’s say that you never know,” she said. “The next project though is definitely another euro covered bond.”

A syndicate official away from MünchenerHyp’s deal said that other European issuers might also look to tap the US dollar market after they emerge from blackout periods in the coming weeks.

“Recent books show that the low yield environment in euros is driving European and Asian accounts to put more of their money into US dollars, and you can sell a highly oversubscribed dollar deal without having to go to the US,” he said. “With good liquidity and competitive pricing, dollars will be appealing.”