Helaba issued the largest euro benchmark covered bond issue since May 2017 today (Wednesday), a EUR2.25bn deal including a rare EUR1.5bn long three year tranche paying a marginally positive yield. Meanwhile, an Austrian UniCredit benchmark met a similarly muted response to its German sibling.

The dual-tranche public sector Pfandbrief issue for Landesbank Hessen-Thüringen (Helaba) comprised a EUR750m seven year tranche alongside the EUR1.5bn July 2022 tranche. The deal is the largest euro covered bond transaction since a Rabobank EUR2.5bn dual-tranche debut in May 2017.

Three year euro benchmark covered bond issuance has been rare in the low yield environment of recent years and depressed spreads of the CBPP3 era, with only a handful of issuers testing zero coupons and even negative yields at the short end of the curve.

However, Helaba attracted EUR1.8bn, pre-reconciliation, of orders to its long three year, and tightened pricing on the EUR1.5bn tranche from guidance of mid-swaps plus 3bp, plus or minus 1bp WPIR, to 2bp over. The EUR750m seven year tranche was priced at 7bp over, following guidance of the 8bp area, plus or minus 2bp WPIR, on the back of a EUR900m book.

“It went very well,” said a syndicate banker at one of the leads. “We were quite confident that we’d get a very strong bid for the three year, but the strength of demand surprised us and I don’t think the issuer expected to be able to take out so much size.”

He said demand came from across asset managers to bank treasuries, and central banks and official institutions. The yield was 0.05%.

The seven year tranche was priced 2bp wider than where LBBW issued a EUR750m seven year mortgage Pfandbrief last Thursday, and the lead banker noted that, as well as spreads having widened since then, the jumbo size of Helaba’s dual-tranche trade meant that pricing flat to LBBW had not been expected.

Barclays, BayernLB, Crédit Agricole, Deutsche, Helaba, Natixis and Santander were leads.

Helaba’s takeover of Dexia Kommunalbank Deutschland, announced at the end of 2018, means that Helaba is now the biggest issuer of public sector Pfandbriefe and second biggest Pfandbrief issuer overall (after DZ Hyp), according to NordLB analysts.

A EUR500m seven year no-grow mortgage Pfandbrief for UniCredit Bank Austria today met with a similarly muted response as a EUR500m 10 year for UniCredit Bank AG (HVB) on Friday, attracting around EUR650m of orders and being priced in the middle of guidance of the 18bp area by leads Crédit Agricole, Erste, ING, LBBW and UniCredit.

A banker away from the leads suggested that among factors constraining demand for both the German and Austrian deals was the group’s Italian parentage, was well as the possibility that investors who are comfortable with the UniCredit name may wish to use their line availability for higher yielding, Italian issuance from the group.