WL Bank reopened the euro market with a Eu500m 10 year Pfandbrief today (Monday) that is one of the tightest ever benchmarks, and bankers said the deal had gone solidly given a tightening of WL’s bonds versus Bunds. Commerzbank and SpareBank 1 Boligkreditt are due with 10s tomorrow.

The German bank’s deal is the first new benchmark in the euro covered bond market since 20 July, when Commonwealth Bank of Australia sold a Eu1.25bn 10 year issue. Supply has meanwhile been limited to taps through the holiday period, and covered bond spreads tightened across all jurisdictions, taking some back to historical lows recorded between June and August of last year.

WL Bank leads BayernLB, DZ Bank, Goldman Sachs, HSBC and NordLB launched the Eu500m no-grow 10 year mortgage Pfandbrief with guidance of the 15bp through mid-swaps area. The spread was then fixed at minus 17bp, on the back of books over Eu600m, including Eu50m of joint lead manager interest. The book closed at above Eu730m, including Eu55m of JLM interest.

“It is a decent trade and went very steadily, with no big surprises to the upside or the downside,” said a syndicate official at one of the leads. “There will be no problems in allocating it, and it was quite comfortable, but the response was not exactly exuberant.

“You cannot expect more in this low yield environment for something that offers a spread of minus 17bp, a 0.10% coupon and a yield of only 0.122%.”

A syndicate official away from the leads said the deal had gone well, considering the tight overall level.

“The books aren’t huge, and some people might have expected a bigger reception for the first new deal,” he said. “But this kind of spread isn’t for everyone, and some investors are still operating with skeleton crews this week.”

The re-offer spread is the tightest ever for a 10 year benchmark covered bond, and the tightest on any new benchmark since February 2015, when NordLB priced a Eu500m four year issue at 18bp through mid-swaps.

“There have been one or two that have come tighter than this in years gone by, but this is by far the tightest 10 year we have ever seen in this market,” said a syndicate official.

Syndicate officials at and away from the leads said the deal offered a new issue premium of around 3bp, seeing WL Bank February 2020s at minus 20bp, mid, with BayernLB January 2020s also at minus 20bp. Syndicate officials also cited Commerzbank June 2026s at minus 24bp, Deutsche Bank June 2026s at minus 17bp, and MünchenerHyp April 2026s at minus 19bp.

“That seems about right for the first deal post-summer,” said a syndicate official away from the leads. “Before the break new issue premiums were pretty much non-existent, but there will be a bit of price discovery with these first few issues and it’s sensible to leave a bit of spread on the table after such a long time out.

“To take nothing away from the deal, this is a fairly vanilla issuer, a sensible maturity, and it’s the sort of deal you’d want to be reopening the market with. It’s no surprise it’s gone smoothly.”

Over the past two months, Pfandbrief spreads over Bunds have tightened from one year highs, on the back of the substantial spread tightening across the covered bond space.

Syndicate officials said WL Bank’s new issue offered a pick-up of around 19bp versus the 10 year Bund.

“There is some pick-up left, which certainly helped,” said a syndicate official at one of the leads. “But one investor actually turned this deal down because they felt it was just too tight to Bunds.

“For some people who look at these deals in terms of the spread to Bunds, it’s not overly attractive.”

However, bankers noted that WL Bank’s curve is particularly tight to the sovereign after its Pfandbriefe outperformed those of many other German issuers in recent weeks.

Analysts at Commerzbank noted last week that 10 year benchmark Pfandbriefe from WL Bank, BayernLB and DG Hyp were quoted 5bp tighter than other instruments from the same issuers and were also out of line with other Pfandbriefe, having outperformed the market by a significant margin over recent weeks.

“This is likely to be due to a special constellation,” said Michael Weigerding, research analyst at Commerzbank. “All these bonds were issued only this year – two were even tapped in July – their yields are still just about in positive territory, they belong to the core names in the Pfandbrief segment and their duration is relatively high.

He said that other Pfandbriefe which meet only some of these criteria have not benefited from the tightening in the segment to the same extent.

“The reason is that – as a result of these peculiarities – trading activity in Pfandbriefe focused above all on these four instruments in recent weeks,” said Weigerding. “Trax recorded a whopping 5% of their nominal in turnover over the eight weeks since 20 June.

“In contrast, many other maturities of the same issuers or other Pfandbriefe often did not even make it above 1%.”

Commerzbank this morning announced a mandate for a benchmark December 2026 mortgage Pfandbrief, with leads BayernLB, Commerzbank, Crédit Agricole, Mediobanca and UniCredit. A syndicate official at one of the leads said the deal may be launched tomorrow, subject to market conditions.

Bankers away from the leads suggested that the deal will probably be priced slightly wider than WL Bank’s new issue, given that Commerzbank is not limiting the size and is targeting a slightly longer maturity.

“If they are going for a bit more size, you would think they will have to offer another basis points or two,” said a syndicate official.

The deal will be Commerzbank’s fifth sizeable covered bond issue since June. It sold two new benchmarks, a new Eu500m 10 year on 2 June and a Eu750m eight year on 4 July, before returning to the market to tap the 10 year issue by Eu500m on 12 July. It then on 12 August tapped a July 2024 by Eu250m.

SpareBank 1 Boligkreditt this afternoon mandated BNP Paribas, Citi, HSBC and UniCredit for a 10 year euro benchmark to be launched in the near future.

Deutsche Pfandbriefbank (pbb) is expected to launch a debut, US dollar Pfandbrief this week, after having mandated a roadshow ahead of a three year public sector issue.