A decision to target shorter maturities in the latter part of the year paid off for BayernLB today (Tuesday) as its swift EUR500m six year Pfandbrief attracted over EUR1bn demand, while a EUR500m seven year for Hypo Noe was less convincing. Deka, RLB Vorarlberg and ASB are in the pipe.

No benchmark deals were brought to the euro covered bond market yesterday (Monday), which was a UK public holiday, but BayernLB and Hypo Noe announced mandates for their respective six and seven year deals, booking their place at the front of the queue on what is expected to be an busy week.

BayernLB leads BayernLB, DZ Bank, HSBC, ING and NordLB launched the EUR500m no-grow six year mortgage Pfandbrief with guidance of the mid-swaps minus 9bp area. After 30 minutes, the leads announced that books were over EUR500m, excluding joint lead manager interest.

One hour after books opened, guidance was revised to the minus 11bp area with the leads having taken more than EUR1bn of orders, including EUR55m JLM interest. The spread was subsequently set at minus 12bp with books over EUR1.1bn, including the EUR55m JLM interest, with books closing one hour and 45 minutes after launch.

“I can’t remember the last time a trade went this quickly, topping the issuance volume in less than 30 minutes,” said a syndicate banker at one of the leads. “Being able to move the spread by 3bp and pricing with a small final new issue premium all within one hour and 45 minutes is a pretty good result in these times, especially if you compare it to other recent Pfandbriefe.”

Syndicate bankers at and away from the leads said that one of the reasons for the deal’s greater success relative to recent supply – which all came in the seven to nine year part of the curve – and today’s Hypo Noe trade was the deal’s shorter maturity.

The lead syndicate banker said BayernLB had deliberately printed longer dated trades earlier in the year, when euro covered spreads were tighter, and left its shorter dated issuance until later, as the issuer had expected spreads to widen towards the end of the year.

“They had a strong view on widening of spreads and were therefore of the opinion they should do their longer deals earlier in the year when there was fresh money on the investor side and while there was strong momentum from ECB purchases – deciding this even before the ECB reduced its participation in the covered bond market in March – and then scaling down later on,” he said. “I think this is one of the main reasons for the demand.

“We were able to deliver a tenor that was more in vogue for investors than others were.”

The lead syndicate banker added that demand was also supported by the recent scarcity of mortgage-backed Pfandbriefe from BayernLB, with the issuer’s three previous euro benchmarks this year all having been public sector issues. He said this was probably a reason for the strong demand received from central banks and official institutions in Germany and the Nordics and away from the ECB.

The final book stood at over EUR1bn with over 50 accounts, with central banks and official institutions taking 40.2%, asset managers and pension funds 32.2%, banks 27.2%, and others 0.4%. Accounts in Germany and Austria took 65%, the Nordics 15.2%, Asia 8%, the Benelux 5.7%, Switzerland 2.5%, the UK and Ireland 1.6%, and others 1.2%.

“The non-domestic share is higher than you’d normally expect for this type of trade, which is a positive sign,” said a syndicate banker away from the leads.

The deal was deemed to have paid a new issue premium of 2bp, with syndicate bankers citing BayernLB April 2024s at minus 15bp, mid, March 2025s at minus 14bp and September 2025s at minus 16bp.

Hypo Noe leads BNP Paribas, Commerzbank, Erste Group, Hypo Noe, LBBW and UBS launched the Austrian bank’s EUR500m no-grow public sector Pfandbrief with guidance of the mid-swaps plus 6bp area this morning. Around one hour and 35 minutes later, the leads announced that books were above EUR500m, excluding JLM interest.

Guidance was subsequently revised to the 5bp area, plus or minus 1bp will price within range, with books approaching EUR600m, excluding JLMs. The spread was then set at 4bp with books above EUR600m, pre-reconciliation, just over three hours after the deal went live.

“It’s an OK result and went somewhat in line with some of last week’s trades, but clearly of today’s trades it is the less convincing,” said a syndicate banker away from the leads.

Besides its longer maturity, syndicate bankers said Hypo Noe’s deal likely attracted lesser demand than BayernLB’s – despite offering a spread 16bp higher – because some investors may still be hesitant to buy Austrian public sector issuance.

Despite being two years shorter, Hypo Noe’s new issue was priced 1bp wider than a EUR500m eight year issue for compatriot RLB NÖ-Wien last Wednesday, which also attracted around EUR50m more demand.

Bankers disagreed on how large a new issue premium the deal offered. They saw Hypo Noe April 2023s at around minus 2bp, but depending on how they calculated the curve extension, some saw the deal as paying a new issue premium of as little as 1bp while others judged it to be closer to 3bp. Wednesday’s RLB NÖ-Wien August 2026s were meanwhile seen trading around re-offer at around 3bp, mid.

Including today’s deals, all but one of the seven benchmarks and taps issued since the euro covered bond market reopened last Tuesday have come from Austria or Germany.

“Many issuers from Germany and Austria are still lagging their funding needs for the year, even with the frontloading in the first half,” said a syndicate banker. “I wouldn’t be surprised to see more issuance from the usual suspects before the end of the year.”

Germany’s DekaBank is set to continue the trend tomorrow (Wednesday), after having this afternoon announced a mandate for a EUR250m seven year public sector Pfandbrief, via leads Commerzbank, Deka and Natixis.

Raiffeisenlandesbank Vorarlberg announced yesterday that it has mandated DZ, Erste, LBBW and Raiffeisen Bank International to arrange a European roadshow after which an inaugural euro benchmark covered bond transaction will follow, subject to market conditions.

The roadshow will start next Monday (3 September) and end on the following Thursday (6 September), visiting Vienna, Copenhagen, Helsinki, Zurich, Vaduz and various German cities.

ASB Finance Limited announced this morning that it will hold a European roadshow starting on 14 September, ahead of a potential euro-denominated covered bond issue with an intermediate tenor.

The deal will be the Commonwealth Bank of Australia subsidiary’s first benchmark covered bond since October 2017 and only the second benchmark covered bond from New Zealand this year, following a EUR750m seven year issue for BNZ in June.

Barclays, CBA, DZ and UBS have the mandate.