LBBW was able to attract $2.3bn of orders to a $750m three year mortgage Pfandbrief today (Tuesday) and price it arguably through fair value, thanks to it being green – a first for a US dollar covered bond. Pbb is expected to launch a conventional three year dollar tomorrow.

Landesbank Baden-Württemberg announced the mandate for its green bond yesterday, teeing up the Reg S $750m (EUR672m) no-grow three year, and leads Citi, Goldman Sachs, LBBW, Nomura, RBC and TD went out with initial guidance of the mid-swaps plus 30bp area.

After less than an hour the leads reported books above $1.5bn, and then after a little under two and a half hours set guidance at the 26bp area, plus or minus 2bp, on the back of some $2.3bn of orders. The deal was ultimately priced at 24bp over mid-swaps.

A syndicate banker at one of the leads described the book as “huge”, given that Reg S dollar covered bonds from European issuers typically see limited demand relative to 144A issuance, and suggested it was the biggest ever seen on an LBBW dollar Pfandbrief.

“And pricing-wise it’s really tight,” he said.

He said working out fair value in the less populated, less liquid dollar covered bond market was not straightforward, but that it would be “not unfair” to put fair value for a conventional three year mortgage Pfandbrief at 26bp-27bp over mid-swaps, implying the deal came with a “green premium” of 2bp-3bp. He noted that the only dollar Reg S Pfandbrief so far this year, a $600m July 2021 mortgage Pfandbrief from Aareal on 10 April, had provided a good reference and was trading at 25.5bp, while dollar supply from the likes of Lloyds and DNB was trading in the high 20s, and some 144A Canadian paper at 26bp-27bp over.

A new euro benchmark for LBBW would be priced at around 6bp through mid-swaps, he estimated, which would be equivalent to around 20bp-21bp over in dollars, meaning the issuer had paid around 3bp-4bp more for its dollar benchmark for accessing dollar funding matching part of its cover pool and diversifying its investor base.

“You would have paid up maybe 10bp to achieve all those positives in the past,” he said.

LBBW has a dollar Pfandbrief maturing this Friday. That $650m deal was issued three years ago at 51bp over mid-swaps, but its coupon was 1.5%, compared with 2.375% on today’s deal, which the lead banker said showed one of the new issue’s attractions.

Final distribution statistics were still being prepared this afternoon, but he said there was “a great share” of green investors, and that demand for US dollar covered bonds was being helped by a developing LCR bid.

LBBW’s trade comes just days after it last Wednesday issued a EUR750m five year non-preferred senior green bond, which attracted EUR1.1bn of demand from some 150 accounts good at a re-offer level of 53bp over mid-swaps. A lead banker said the green nature of that trade also helped pricing come through fair value while other, non-covered FIG new issues this week have been having to pay slightly higher new issue premiums.

The German bank sold its first green covered bond in June 2018, a EUR500m five year, after inaugurating its framework with a EUR750m four year senior unsecured trade in December 2017.

Deutsche Pfandbriefbank (pbb) is set to be the next issuer to tap the US dollar market, having today mandated a $600m no-grow three year Reg S mortgage Pfandbrief. Leads Goldman Sachs, JP Morgan, NatWest and Nomura are expected to launch the issue tomorrow (Wednesday).