Pbb attracted final demand of some EUR625m to a EUR500m no-grow six year Pfandbrief today (Tuesday), encountering slight price sensitivity while being priced with a slim premium and the same spread as a recent shorter higher-rated Deutsche deal, but achieving a “solid” result.

The new issue for Deutsche Pfandbriefbank (pbb) is only the third benchmark covered bond of the month and the first since compatriot Deutsche Bank printed a EUR500m five year last Tuesday. An upturn in issuance has been widely expected this week, and market participants had been waiting to observe investors’ response to whichever issuer stepped up first.

This morning, Citi, Commerzbank, Deka, Deutsche and Erste launched pbb’s EUR500m no-grow issue with guidance of the mid-swaps minus 6bp area. The leads announced books had exceeded EUR500m after around 50 minutes, and subsequently revised guidance to the 8bp area, plus or minus 1bp will price within range, with books above EUR650m. The spread was later fixed at minus 9bp with books at EUR625m.

“I’d say it’s a solid outcome,” said a syndicate banker away from the leads. “EUR625m is not super-oversubscribed, and is nothing in comparison to the recent Deutsche Bank trade last week, but Deutsche Bank was not exactly a blueprint for Deutsche Pfandbriefbank to follow.”

Deutsche Bank’s EUR500m five year issue was also priced at minus 9bp, upon a final book of over EUR1bn, and was seen trading at around minus 10bp, mid, today. Deutsche Bank’s deal is rated Aaa, whereas pbb’s is rated Aa1.

Bankers attributed pbb’s smaller book to the fact that its deal came at the same spread as Deutsche’s shorter-dated higher-rated deal, but said that for pbb matching its predecessor’s spread with a longer-dated lower-rated deal was a good result.

“There was apparently some price sensitivity around that minus 8bp mark,” added a syndicate banker away from the leads. “But the book held – they probably decided that if they were losing just EUR25m or EUR30m of orders and could still get a book of good quality they could take it down to minus 9bp.”

Syndicate bankers said the deal offered a new issue premium of 1bp-2bp versus pbb’s curve, seeing its March 2023s at minus 12bp, mid, and deeming the curve extension to be worth 1bp-2bp. The lead syndicate bankers also cited as a comparable Commerzbank July 2024s at minus 13bp, mid.

“It’s a fairly slim concession compared to what we saw in April,” said a syndicate banker away from the leads. “That recalibration in covered bond spreads has clearly helped.”

Syndicate bankers said the relative value of covered bonds has also improved in recent weeks as they have underperformed SSAs and sovereigns, and suggested this would have supported demand for today’s deal.

“In comparison, SSA spreads have been stable, leading to Pfandbriefe offering more pick-up versus issuers like KfW, so accounts see value,” said one.