BayernLB attracted over $450m of orders for a $300m three year Pfandbrief today (Tuesday), which was priced roughly flat to an equivalent euro issue that would have been a far more difficult sell, according to bankers, after a surge in corporate dollar supply yesterday showed the market’s potential.

The new Eurodollar issue is the first benchmark US dollar covered bond since 12 July, when fellow German issuer MünchenerHyp priced a $600m three year Pfandbrief at 48bp over mid-swaps. Bankers had noted in recent sessions that US dollars looked particularly attractive for issuers, with spreads tightening and roughly flat to euros and with the market likely to remain open for the coming weeks.

Yesterday some $23bn of supply hit the market, the majority of it in the corporate space – including a $19.75bn deal for Microsoft – but bankers said a Santander UK $1.5bn five year senior unsecured bond was an encouraging result for other financials issuers.

Bayerische Landesbank leads BayernLB, Credit Suisse and Goldman Sachs began taking IOIs for the covered bond yesterday, before this morning announcing a $300m (Eu269m) no-grow three year Pfandbrief with initial price thoughts of the 48bp over mid-swaps area. They then moved to guidance of 45bp-47bp, before fixing the spread at 45bp. The book closed at over $450m.

Bankers noted that the new issue is the tightest-priced benchmark US dollar covered bond of the year, having come through the level at which MünchenerHyp’s issue was sold. They said this was appropriate given its smaller size, also noting that US dollar spreads, in line with those in other markets, had ground tighter through July on the back of a lack of new issuance.

Syndicate officials at and away from the leads quoted the MünchenerHyp July 2019s at 38bp, mid, and LBBW May 2019s at 35bp.

“This feels fairly priced,” said a syndicate official away from the leads. “As a less regular issuer, you would expect BayernLB to price a little bit back of the others – if you can differentiate between triple-A rated Pfandbriefe.”

He said the deal’s price was equivalent to a euro spread of minus 15.5bp, which he said was around flat to where an equivalent euro trade would be priced.

“However, this is probably only theoretical, as at these very negative yields I’m not sure you would currently be able to execute a euro three year at such levels,” he said.

Noting that the three year swap rate is at minus 19bp, the syndicate official estimated that a three year euro Pfandbrief would likely be priced with a coupon of minus 0.4% today. The new dollar issue was priced with a coupon of 1.375%.

“You would assume that is why they chose to use the dollar market, where they are not the most frequent issuer, to access the short end,” he said.

BayernLB’s last US dollar benchmark Pfandbrief came in April 2015, when the German issuer sold a $500m three year.