Deutsche Pfandbriefbank sold a £300m long three year covered bond today (Wednesday), with investor legwork seen as having paid off in a book above £400m. Sterling issuance may not make sense for all, however, as it and compatriot Aareal earlier this week paid up versus euros.

Leads NatWest, Nomura and TD launched the fixed rate December 2021 issue with guidance of the 65bp over Gilts area this morning. The spread was fixed at 63bp and the size at £300m (EUR338m) with books over £400m.

“It’s a very nice trade,” said a syndicate banker at one of the leads. “There was a fairly meaningful contingent of both continental and UK buyers.

“The issuer has done a fair bit of legwork within London in terms of going out and meeting accounts and that bore fruit when it came to the amount of engagement we saw here compared with what you get for other Pfandbrief borrowers in the sterling space.”

Bankers at and away from the leads highlighted that the deal was priced only around 5bp wider than an equivalent deal from a major UK bank would have been priced today.

“It’s a good result and a successful follow on from Aareal’s deal earlier in the week,” added a syndicate banker away from the leads.

Today’s deal comes shortly after a £250m Pfandbrief for Aareal Bank on Monday. Leads Goldman Sachs, HSBC and Nomura launched Aareal’s June 2022 issue with guidance of the Gilts plus 65bp area and the spread was ultimately set at 63bp and the size at £250m with books at £300m.

Syndicate bankers noted that pbb and Aareal paid up substantially to access the sterling market versus the spreads they would be able to achieve in the euro covered bond market, but said this made sense for the issuers as they have sterling assets to fund.

“Pbb are taking quite a pragmatic approach to building a profile in the UK market, and we’re also dealing in a market that, I think it’s fair to say, derives more of a fair value based approach to pricing rather than a QE-influenced one,” said the lead syndicate banker.

The deals’ final spreads of 63bp were deemed to be equivalent to a euro spread of the low single digits over mid-swaps, whereas the issuers’ three year euro outstandings are deeply in negative territory.

“For Deutsche Pfandbriefbank, this deal is around 15bp cheap to their euro curve, which probably encouraged some participation,” said a syndicate banker away from the leads.

Bankers said sterling covered bond supply from German or other Eurozone issuers is likely to remain limited in the short term.

“If you’re not bought by the ECB then sterling issuance is still viable, as spreads are competitive,” said one. “But if you are benefitting from CBPP3 and pricing in mid-swaps negative territory in euros then it is difficult, unless you have natural sterling needs.”