Landesbank Baden-Württemberg (LBBW) attracted Eu1.6bn of demand to a Eu1bn eight year Pfandbrief today (Monday), coming 2bp inside where a Eu500m Berlin Hyp issue was priced last Wednesday and at the tightest level for a benchmark covered bond since November.

LBBW’s re-offer spread of 12bp is the tightest since 16 November when it was achieved by Commerzbank with a Eu500m seven year, and it was last beaten by a deal in the eight year maturity or longer by ING-DiBa with a Eu500m 10 year on 8 November. The previous tight for the year was also set by LBBW, 10bp through on a Eu1bn seven year in January.

LBBW announced the mandate for its new issue on Friday afternoon, flagging a benchmark eight year mortgage Pfandbrief via leads ABN Amro, Commerzbank, Natixis and Santander alongside itself.

The leads opened books this morning with guidance of the 8bp through mid-swaps area, then revised guidance to the 10bp through area on the back of Eu1bn of orders. The spread was fixed at 12bp through with books at Eu1.5bn, and after a total of two hours orders ultimately reached Eu1.6bn pre-reconciliation and excluding joint lead manager interest.

Some market participants highlighted the 4bp tightening from what one deemed a “generous” 8bp through starting point, but deemed the overall exercise to have been very successful.

“Maybe they just wanted to build up a head of steam to be in a position to drive the pricing down fairly aggressively,” suggested another syndicate banker, “and they certainly achieved that.”

The pricing compares with 10bp through achieved by Berlin Hyp on the most recent German benchmark, a Eu500m eight year deal last Wednesday.

“Clearly they had ambitions to beat BHH by at least 1bp,” said a banker, “and, at 12bp, they did, even for a larger size.”

He noted that LBBW typically trades a little inside Berlin Hyp in the secondary market.

A syndicate banker away from the leads put the new issue premium at 2bp-3bp, based on seeing LBBW January 2024s at minus 17bp, bid, and its September 2025s at minus 14bp, implying fair value at around 15bp through.

“Combined with a Eu1.6bn book at such a tight level, that is quite something,” he said. “It is promising for the rest of the market, or core and high quality names, at least.”

He noted that a senior unsecured deal for Svenska Handelsbanken and a Tier 2 for DNB had also achieved tight pricing today.

“We are at historic low spreads versus swaps in senior and Tier 2,” he added. “Technicals are strong enough to get everything printed tightly – cash is there and people just don’t know what to do with it.

“As long as you don’t go beyond seven to eight years in covered, it all works extremely well.”

Despite conditions being so attractive, only a few concrete plans for deals are in the works, syndicate bankers said.

“I presume there will be more,” said one. “We have a project cooking that we hope will materialise this week, and there is another one that we are in with a shout for.

“But I don’t expect things to be substantial, supply-wise.”

The last previous benchmark covered bond was a Eu1bn seven year for Nationwide Building Society on Thursday.