MünchenerHyp is set to follow Berlin Hyp into deeply negative yield territory tomorrow (Thursday), after mandating a EUR500m no-grow four year mortgage Pfandbrief – which should ensure the 250th anniversary of the Pfandbrief does not pass without being appropriately commemorated.

The Bavarian lender’s new euro benchmark will be the first since Berlin Hyp on Tuesday of last week (19 August) reopened the market with the lowest yielding benchmark covered bond ever, a EUR1bn three year yielding minus 0.588%.

MünchenerHyp’s last euro benchmark was a EUR500m 20 year in April, and when it in July launched a rare $600m dollar issue in the three year maturity, a MünchenerHyp investor relations official expressed scepticism around investor interest in the negative yields at the short end of the euro market.

However, the subsequent development of interest rate expectations and moves in yields persuaded Berlin Hyp to take the plunge last week and appear to have had a similar influence on MünchenerHyp.

“We were surprised by the strong demand for such short tenor paper in deeply negative territory,” said a syndicate banker at one of MünchenerHyp’s leads. “Berlin Hyp has opened a new path for core European covered bond issuers in particular.

“Investors now have alternatives – is it deeply negative, or more deeply negative? – and can take a view on that and still join the party if it’s offering a pick-up. And it appears to be the smarter move for issuers to say, if it’s going to in negative territory, what’s the difference? I’ll just make the duration shorter.”

He said that especially LCR-driven accounts have been waiting for such trades, having previously been forced to extend out into longer maturities where issuers were seeking to offer positive yields.

BayernLB, Credit Suisse, DZ and Helaba are leads on MünchenerHyp’s EUR500m no-grow four year, which was announced today (Wednesday) for launch in the near future, subject to market conditions.

By way of comparables, the leads cited MünchenerHyp June 2023s and December 2023s at minus 5bp, mid, and Berlin Hyp’s EUR1bn three year from last week at minus 2.5bp.

MünchenerHyp’s deal is set for launch on the 250th anniversary of Frederick the Great signing a cabinet order on 29 August 1769 that begat the Pfandbrief.

“Above all else, the Pfandbrief owes its success to its dependability, stability and quality,” said Louis Hagen, chair of the board of managing directors of MünchenerHyp and president of the Association of German Pfandbrief Banks (vdp), this week.

“A stable pillar of the German financial system, the Pfandbrief has repeatedly demonstrated and constantly increased its appeal through innovation and change.”