Deutsche Hypo sold a Eu500m eight year Pfandbrief today (Wednesday) with books just subscribed at the last update and the leads able to tighten the spread only 1bp despite a relatively generous concession, and some bankers blamed the rumoured sale of the issuer by parent NordLB.

The German issuer announced yesterday (Tuesday) that it had mandated Deutsche Bank, DZ Bank, HSBC, NordLB and UniCredit to lead manage the Eu500m no-grow mortgage-backed issue.

The deal was launched at 9:00 CET this morning with guidance of the mid-swaps minus 9bp area. The leads announced just after 10:40 that the books were over Eu500m, including Eu15m joint lead manager interest. At around 11:20, the spread was set at minus 10bp.

“It went slowly and it looks like they had a tough time getting to the Eu500m mark,” said a syndicate banker away from the leads. “The starting point even looked a bit generous, but they were only able to tighten 1bp and ended up offering quite a large premium, at least compared with recent trades.”

Bankers said the deal offered a new issue premium of around 5bp, seeing Deutsche Hypo April 2022s and February 2023s at minus 14bp, mid, pre-announcement, and May 2024s – its longest dated outstanding – at minus 15bp mid. They also cited Berlin Hyp 2023-2025 paper trading between minus 16bp and 15bp, and DG Hypothekenbank December 2024s and March 2026s between minus 17bp and 16bp.

The modest demand for the deal was partly attributed to competing supply, with La Banque Postale today pricing a Eu500m 10 year covered bond at flat to mid-swaps (see separate article), offering substantially more spread for a longer dated deal.

Doubts about Deutsche Hypo’s future were also cited. In recent weeks, news reports have suggested that Deutsche Hypo’s parent, NordLB, is considering selling the real estate subsidiary. The rumours emerged in a challenging period for NordLB, with the bank reporting higher than expected losses in its 2016 results owing to its shipping exposures.

Bankers said that should Deutsche Hypo be separated from the NordLB group, its cover pools and credit profile are unlikely to be substantially negatively affected, but said the story could have had an impact nonetheless.

“It may have given some investors extra reason to be cautious,” said one. “We have seen in some recent trades for NordLB that the shipping story has an impact.”

Tomorrow (Thursday), some regions of Germany will mark Corpus Christi, and bankers said the market could therefore close for the week by end of business tomorrow.