Commerzbank today (Friday) attracted over Eu600m of orders to the longest-dated negative-yielding euro benchmark covered bond supply yet, a Eu250m tap of a Eu750m July 2024 Pfandbrief that was priced at the tightest spread in a year, in the first issuance in the currency for three weeks.

The tap is the first significant public covered bond supply in the euro market since 20 July, when Commonwealth Bank of Australia sold a Eu1.25bn 10 year issue and HSH Nordbank tapped a April 2023 Pfandbrief by Eu350m. Covered bond supply has since been limited to other currencies, and market participants said the European holiday period had encouraged issuers to look at such alternatives.

“It was something of a surprise to see a deal this morning after such a quiet week, particularly on a Friday,” said a syndicate official away from the leads. “But in this ‘anything goes’ market, why not?”

Commerzbank leads Credit Suisse, Commerzbank, LBBW, Natixis and SEB reopened the July 2024 mortgage Pfandbrief at 9:00 CET with guidance of the 13bp through mid-swaps area, before revising guidance to minus 15bp plus or minus 1bp, will price within range, with books over Eu500m at 9:25.

At 9:35, the spread was fixed at minus 16bp at the size at Eu250m, on the back of books in excess of Eu600m. The deal was priced with a coupon of 0.05% and a re-offer price of 100.974 to yield minus 0.073%.

Only three publicly placed covered bonds had previously been sold with negative yields, a Eu500m three year for Berlin Hyp in March, a Eu250m February 2023 tap for Deutsche Hypo on 15 July, and a Eu1.25bn six year issue for Canadian Imperial Bank of Commerce on 18 July.

“This is the new normal,” said a syndicate official away from the leads. “Investors are no longer looking for a higher yield, but a lower loss.

“I expect there are many more negative-yielding deals to come in this market.”

The re-offer spread is the tightest on any benchmark supply since MünchenerHyp priced a Eu750m long five year deal at minus 17bp on 29 July 2015.

Commerzbank’s initial Eu750m July 2024 issue was priced on 4 July at minus 4bp (to yield 0.095%), and pre-announcement was quoted at minus 19bp, mid, according to syndicate officials at the leads. Syndicate officials said the deal therefore offered a new issue premium of around 3bp, also citing Commerzbank November 2023s at 15bp, mid, Commerzbank September 2025s at 18bp, and 2023-2024 paper from MünchenerHyp and Helaba at minus 15bp.

“In terms of the demand and the size of the premium, it is more or less in line with the last wave of Pfandbrief taps,” said another banker away from the leads. “It shows just how far spreads have tightened since then on the back of this summer slowdown, but also that investors are still around and willing to buy.”