Aareal Bank is set to issue a EUR500m long six year Pfandbrief tomorrow (Tuesday), adding to recent heavy supply from the jurisdiction and amid questions over demand for German paper, although the issuer’s relative rarity is expected to work in the deal’s favour.

Aareal announced a mandate for the EUR500m no-grow mortgage-backed transaction this (Monday) morning. BayernLB, BNP Paribas, Commerzbank, DekaBank and UniCredit have the mandate. A syndicate banker at one of the leads said the deal will be launched tomorrow, subject to market conditions.

German issuers have been the most active in the euro covered bond market year-to-date, issuing 13 new benchmarks amounting to EUR8.5bn of supply (or 19% of year-to-date supply). Six of the 13 euro benchmark covered bonds issued so far this month are German Pfandbriefe.

The last, a EUR500m 10 year issue for WL Bank on Thursday, was deemed to have struggled after it was priced in the middle of initial guidance, at minus 13bp, and the size of the book was not disclosed. Some bankers suggested that the deal’s starting point had been too tight and also partly attributed the limited demand to the recent heavy supply out of Germany.

“Looking at order book sizes, the Germans have done worst over recent weeks,” said a syndicate banker away from the leads. “Issuers now have to acknowledge that you need to pay a certain amount of new issue premium to get the book to a healthy number and get confidence back for German covereds.”

However, bankers away from the leads said it could act in the deal’s favour that Aareal has been a relatively rare name in the Pfandbriefe market in recent years.

Aareal returned to the covered bond market after a two year absence in January 2017, when it sold a EUR500m long five year issue. In September it then sold $625m and £250m Pfandbrief issues, both three years.

Syndicate bankers said it is also positive that there has been a pause in covered bond issuance covering Friday and today, after four euro benchmark deals were issued on Thursday and amid some concern over the market’s capacity for further heavy supply, after some covered bond spreads widened slightly last week.

“Hopefully an easing of the new issue supply can take some stress out of the secondary market,” said one.