Münchener Hypothekenbank attracted over EUR3bn of demand from 119 accounts to a EUR500m no-grow 20 year covered bond today (Thursday), as the record long-dated Pfandbrief benchmark took full advantage of the dovish interest rate environment to come inside fair value.

DZ Hyp on Tuesday demonstrated the strength of demand at the very long end when it drew over EUR2.4bn of orders for a EUR500m no-grow 15 year Pfandbrief priced flat to fair value. The new issue was the first to tap into investor interest in such long-dated paper prompted by the increasingly widespread view that already low rates will remain subdued.

This view was reinforced yesterday (Wednesday) when the European Central Bank reiterated its dovish stance following a meeting of its governing council, and afterwards Münchener Hypothekenbank (MüHyp) teed up today’s trade by announcing the mandate for the EUR500m no-grow 20 year mortgage Pfandbrief.

Leads DekaBank, DZ, LBBW, SG, UBS and UniCredit then opened books at 9.00 CET today with initial guidance of the mid-swaps plus 12bp area. After half an hour they reported books above EUR2bn, including EUR75m joint lead manager interest, and around 10 minutes later set the pricing at 7bp over on the back of books above EUR2.6bn, including EUR140m JLM interest. The books were closed at 10.00 CET, with demand ultimately reaching more than EUR3bn, with 119 accounts involved.

“After 60 minutes we had more than EUR3bn of demand and had to close the book,” said a syndicate banker at one of the leads, “so we had a lot of investors rushing in. It was not the usual trade.”

Another lead banker said the tenor was perfect match to investor demand given the steepness of the yield curve from 10 to 20 years of around 50bp.

“If the ECB’s interest rate policy is remaining unchanged for a prolonged period of time – which seems to be the case – the curve is way to steep,” he added.

The pricing of 7bp over mid-swaps for the 20 year issue was flat to where DZ Hyp’s 15 year was priced on Tuesday, and bankers said that although it was not obvious where fair value was – with this being the longest-dated Pfandbrief benchmark – the same pricing for the longer maturity – for similarly high quality issuers – meant that it had come inside fair value, by around a couple of basis points. The pricing was equivalent to 67bp over the Bund.

Around half of the deal was placed to non-German accounts in 15 jurisdictions. Germany was allocated 51%, Austria and Switzerland 15%, southern Europe 12%, the UK 10%, the Nordics 4%, the Benelux 3%, France 3%, and others 1.5%.

“From that angle, it was clearly a success,” said the first lead syndicate banker.

He said that, as with DZ Hyp’s 15 year, banks were foremost in the order book, with real money accounts taking a backseat, although less so than for DZ. The deal was priced with a 1% coupon and a yield of 1.07%, still short of the levels being sought by German pension funds, for example, he added. Banks were allocated 61%, funds 29%, central banks 6%, insurance companies and pension funds 4%, and others 1%.

MüHyp’s rarity relative to DZ Hyp probably contributed to the impressive pricing, according to the lead syndicate banker, alongside the lack of such long-dated Pfandbrief supply.

“And after the ECB, which was – as expected – dovish again, a lot of accounts have a view incorporating decreasing yields,” he said.

Syndicate bankers said other issuers could follow the example of DZ Hyp and MüHyp, even if the range of names interested in such long-dated issuance was limited.

“I have had a couple of calls with other issuers this afternoon,” said one. “We’ll see who’s next on the bandwagon.”