ING-DiBa priced a Eu500m 10 year Pfandbrief today (Tuesday) at one of the tightest benchmark covered bond spreads of the year, and bankers said the issuer’s rarity, after a four year absence, helped rather than hindered, although demand was modest when compared with non-German supply.

The German ING subsidiary announced a mandate for a Eu500m no-grow 10 year mortgage Pfandbrief yesterday (Monday), targeting what was expected to be a clear window this morning ahead of the outcome of the US election. With markets stable at the European open, leads Crédit Agricole, Commerzbank, Danske, ING and LBBW launched the deal this morning with guidance of the mid-swaps minus 12bp area.

Guidance was then revised to the minus 14bp area with books above Eu750m, excluding joint lead manager interest, after just over an hour. The spread was then set at minus 15bp, with the characterisation of the books unchanged. The final size of the order book was not disclosed when The CBR went to press.

“We’re very happy with this result,” said a syndicate banker at one of the leads. “We used a two day execution process to give investors a chance to get reacquainted with the issuer and the cover pool, and after no negative headlines came out of the US overnight, it was nice to get out there early and get the deal done before the election results.

“In the end this has been priced at a level very competitive versus recent Pfandbriefe, and even if you look at the tightest prints of the year, it’s right in there amongst them.”

The new issue is the third tightest new benchmark covered bond this year, behind only a Eu500m 10 year issue for WL Bank that was priced at minus 17bp on 22 August and a Eu750m 10 year for Commerzbank on 23 August.

Bankers at and away from ING DiBa’s leads said the deal offered little to no new issue premium, citing 10 year triple-A paper from other German issuers, quoted at minus 17bp-15bp, mid.

“Sometimes rarity works in your favour when pricing a deal,” said the lead syndicate banker. “This is one of the top names in Germany, so I think investors saw this trade more as a rare opportunity to buy, rather than an issuer that would need to pay up because it is infrequent.”

The new issue is ING-DiBa’s first benchmark Pfandbrief since March 2012, when it sold a Eu500m March 2019 issue, which is its only benchmark covered bond still outstanding.

Bankers said that demand for the new issue appeared to be substantially lower than recent non-German supply, but in line with that received for other recent German Pfandbriefe. A Eu750m 10 year for NordLB on 24 October and a Eu500m long eight year for DG Hyp on 25 October attracted orders of around Eu750m apiece.

“The book isn’t overwhelming, but its round about what you can expect for German paper at these levels,” said a banker away from the leads. “With the size capped at Eu500m, they could also afford to be a bit more aggressive with the price.”

Market participants said further covered bond supply could hit the screens as soon as tomorrow depending on the outcome of the US election, with a Hillary Clinton victory expected to be conducive, although a surprise win for Donald Trump is seen as having the potential to close the market for at least the rest of the week.

Photo credit: ING-DiBa