The euro covered bond market is set to be reopened tomorrow (Tuesday) by Aareal and Eika Boligkreditt, which today mandated seven year deals. Their moves came as Berlin Hyp opened the German senior preferred market, but takeaways from the debut were deemed limited.

The awaited deals will be the first euro benchmark covered bond issues since 18 July, with the market having been dormant throughout the traditional summer lull, and are expected to kick off an active week. Other issuers are also said to be monitoring the covered bond market and are likely to launch euro benchmarks in the coming days.

“All of a sudden we are back from the summer vacation and into a busy week,” said a syndicate banker.

Aareal announced this (Monday) morning that it has mandated DZ, LBBW, Natixis, NordLB and SG to lead manage a EUR500m no-grow July 2025 mortgage Pfandbrief, which is expected to be launched tomorrow.

Syndicate bankers at Aareal’s leads saw Aareal July 2024s at minus 12bp, mid, and also cited as comparables UniCredit October 2023s at minus 14bp and May 2026s at minus 13bp and three 2025 outstandings of Commerzbank, trading between minus 13bp and minus 10bp.

Eika Boligkreditt has mandated Commerzbank, Deutsche, ING, Santander and UBS for its EUR500m no-grow seven year, which is also expected tomorrow.

Other euro-denominated FIG markets have also been quiet through the summer, but today Berlin Hyp got the new German senior preferred market underway with a EUR300m five year transaction – coming after legislative changes implemented on 21 July opened up the country’s senior preferred market.

The deal was priced at 13bp over mid-swaps, down from initial guidance of the 15bp area, with books last reported “well above” EUR375m, including EUR40m joint lead manager interest.

Syndicate bankers said the relatively modest demand for the deal was not a sign of some broader market weakness nor a concern for potential covered bond issuers. They suggested instead that it reflected the deal’s sub-benchmark size and that some investors may have found the pick-up versus Pfandbriefe to be too slim, with bankers estimating that the deal was priced around 25bp wider than an equivalent Berlin Hyp covered bond would have been priced today.

“Price-wise this new asset class belongs between Pfandbrief and senior non-preferred,” said a syndicate banker. “What will this spread differential be in the medium term?

“That is the question that has to be answered by future transactions.”

Commerzbank subsequently announced a mandate for its senior preferred debut, a dual tranche, five and 10 year deal that is expected tomorrow.