Berlin Hyp and WL Bank tapped Pfandbriefe for Eu250m each today (Monday), well inside where the deals were priced in late August and arguably inside fair value. Berlin Hyp found more demand while increasing its long six year to benchmark size, as WL Bank offered just 1bp more for its 10s.

Today’s taps come after MünchenerHyp tapped a Eu500m May 2027 mortgage Pfandbrief for Eu250m at a spread of minus 17bp last Monday and Helaba tapped a Eu750m January 2027 public sector Pfandbrief for Eu250m at minus 18bp – the tightest ever benchmark covered bond issuance in the 10 year part of the curve.

“Ahead of the ECB on Thursday, these taps are allowing banks to fine-tune their funding needs,” said a syndicate banker. “Unsurprisingly, private placements are not working so well at current levels and the majority of investors would prefer LCR-eligible paper.

“Also, we are at record lows in terms of overall spreads. If you can collect money at these prices, you simply have to do it as an issuer.”

Berlin Hyp’s Eu250m January 2024 mortgage Pfandbrief was reopened at around 8:50 CET this morning by leads BayernLB, Commerzbank, DekaBank, HSBC and NordLB with the spread set at mid-swaps minus 18bp for a Eu250m no-grow tap – taking the deal to benchmark size.

At just after 9:30, the leads announced that books had exceeded Eu285m, including Eu105m joint lead manager interest. The book closed at 10:00 in excess of Eu355m, including Eu105m JLM interest.

“It is quite an unusual strategy, to upsize a sub-benchmark trade to benchmark size and take it up a level in terms of LCR treatment,” said a syndicate banker at one of the leads.

The original issue was priced at minus 14bp on 29 August and seen trading at around minus 15bp, mid. The lead syndicate official said it was more appropriate to measure the pricing of the tap against fair value for a new January 2024 benchmark issue, which he estimated would be minus 20bp-19.5bp, based on Berlin Hyp’s curve.

“We thought that if we wanted to upsize the deal to benchmark size we should at least offer a concession in the context of 1.5bp to 2bp,” he said. “We thought minus 18bp was the right number, even if it was 3bp through the mid side of this trade before the announcement.”

“It was quite ambitious, but looking at outstanding benchmarks from other German issuer’s and Berlin Hyp’s curve, it seemed fair. We were confident it would work out, and it did.”

Almost 20 investors were in the final book, excluding joint lead manager interest.

At around 9:25 CET, Westfälische Landschaft Bodenkreditbank (WL Bank) leads DZ Bank, Erste, Helaba, Natixis and NordLB reopened the Eu500m August 2027 mortgage Pfandbrief with the spread set at mid-swaps minus 17bp for a Eu250m no-grow tap.

The book closed at 11:00 CET, but the size of the book was not disclosed. It is understood that the deal was not fully subscribed.

The original issue was priced at minus 12bp on 22 August and seen trading at around minus 16.5bp, mid, implying the deal was priced inside fair value.

“It went head to head with another transaction three years shorter and paid just 1bp more, while being flat to the mid side, so you can see why they got less demand than Berlin Hyp,” said a banker away from the leads. “If they weren’t able to get it fully subscribed and if there was something left over then I’m sure those few bonds will flow out over the next few days.

“It’s still by no means a bad trade, for this kind of tap.”

Bankers said other issuers may choose to tap outstanding bonds in the coming days, given the attractive levels on offer.

Greece’s Eurobank Ergasias will today conclude a European roadshow ahead of a debut three year euro benchmark covered bond, which could emerge as soon as tomorrow (Tuesday).