Münchener Hypothekenbank is set to launch the longest Pfandbrief benchmark in years tomorrow (Thursday), a EUR500m 20 year that will further test long end demand after a DZ Hyp 15 year yesterday. Aareal meanwhile attracted some $850m of orders to the first Reg S dollar benchmark of the year today.

Münchener Hypothekenbank (MüHyp) announced the mandate for its 20 year mortgage Pfandbrief this afternoon for launch in the near future, with DekaBank, DZ, LBBW, SG, UBS and UniCredit expected to launch the EUR500m no-grow transaction tomorrow.

The last comparable maturity German benchmark was a EUR500m 19 year public sector Pfandbrief for Deutsche Pfandbriefbank (pbb) in April 2016.

DZ Hyp yesterday (Tuesday) uncovered a surge in demand for long-dated paper when it attracted over EUR2.4bn of orders to a EUR500m no-grow 15 year priced flat to fair value, at 7bp over mid-swaps.

A syndicate banker at one of MüHyp’s leads said DZ Hyp’s new issue was the most relevant comparable for MüHyp’s, also given a lack of other long-dated German comparables. He suggested the curve between 15 and 20 years – based on the secondaries of Dutch and French names with long curves – was worth around 2bp-3bp.

“That’s what I’d expect in terms of final re-offer,” he said.

Notable in DZ bank’s distribution was a 58% share taken by banks, compared with just 5% to insurance companies and pension funds, according to final statistics. Some market participants suggested this highlighted how demand was driven by the spread rather than the yield on offer, with traditional long-dated buyers unimpressed by the sub-1% yield, but bank treasuries who have more flexible mandates pushing out beyond 10 years to get the higher positive spread available.

“It will be interesting to see what impact MüHyp offering 1% would have on yield buyers,” said a syndicate banker away from the leads.

Germany’s Aareal Bank tapped the other end of the curve, today (Wednesday), reopening the Eurodollar covered bond market with a $600m (EUR532m) long two year Reg S issue.

Leads Citi, Goldman Sachs, HSBC and NatWest opened books for the expected $600m-sized July 2021 mortgage Pfandbrief with initial guidance of the mid-swaps plus 32bp area. They reported books above $600m after around an hour and a quarter, and after almost three and a half hours revised guidance to 30bp+/-2bp, WPIR on the back of $850m of demand, with an expected deal size of $600m reiterated. The deal was ultimately priced at 28bp over mid-swaps, with books in excess of $875m at guidance.

A lead banker said the transaction attracted decent international support and high quality demand including a combination of central banks and real money funds, with Aareal enjoying good global sponsorship thanks to its record of issuing in dollars and sterling as well as euros. He noted that Aareal had a $500m redemption on 1 April.

The level of 28bp over mid-swaps in dollars was equivalent to around mid-swaps plus 4bp in euros, according to the lead banker, who estimated that this was equivalent to around 5bp more than an equivalent euro trade might cost Aareal, with its July 2022s trading at around minus 5bp. However, he noted that Aareal has assets denominated in dollars and the transaction therefore represents match-funding for the issuer.

“All in all, it’s a pretty nice deal,” said the lead banker. “They have successfully printed an oversubscribed dollar trade and reopened an undersupplied market.”