Aareal Bank sold a EUR500m long four year mortgage Pfandbrief at mid-swaps flat today (Tuesday), with its EUR625m-plus book showing that demand remains subdued despite spreads having widened to what only recently would have been considered attractive levels.

The German issuer went out with its trade this morning via leads BayernLB, Commerzbank, DZ, HSBC and LBBW, citing a “benchmark” size and initial guidance of the 1bp over mid-swaps area for the February 2023 issue. After more than an hour and a half the leads reported books above EUR500m, then revised guidance to mid-swaps flat plus or minus 1bp for a EUR500m size with books above EUR600m after close to three hours, and ultimately printed the deal at mid-swaps flat on the back of EUR625m of demand.

A syndicate banker at one of the leads acknowledged that the announcement of a benchmark trade, rather than EUR500m, and eventual sizing at EUR500m showed that the issuer would have been happy with more, but he said it was nevertheless satisfied with the outcome given the state of the market.

“This is what you can achieve these days,” he added.

The lead banker put the new issue premium at 5bp-6bp.

The pricing was flat to where UniCredit Bank AG (HVB) priced a EUR750m seven year Pfandbrief just two weeks ago, which was seen as paying a new issue premium of around 7bp.

A banker away from Aareal’s deal today said that he had expected more demand, given the mid-swaps plus starting guidance and expectation that the deal would be priced no tighter than minus 1bp.

“But what the market is telling you is different,” he said. “Unless you pay 8bp or more of NIP, it doesn’t look like you are going to get more than EUR500m in size for a CBPP3-eligible trade.”

However, the lead banker noted that the outcome was successful considering that the trade is Aareal’s fourth benchmark of the year.

And despite the modest outcome, he suggested that the issuer was well-advised to have issued now rather than wait any later this year, with the market showing signs of shutting down, and that the shorter maturity also stood it in good stead.