A €500m seven year mortgage Pfandbrief for Hypo Tirol today (Thursday) became the second euro benchmark in succession to fail to attract sufficient demand, with the lack of investor interest deemed puzzling, but potentially a reflection of investors being more discriminating at prevailing levels.

Leads Commerzbank, DekaBank, DZ, Erste, LBBW and RBI went out this morning with guidance of the mid-swaps plus 14bp area for the €500m no-grow seven year mortgage Pfandbrief. After around two hours and 10 minutes, the spread was set in the middle of initial guidance on the back of orders over €400m, including €70m joint lead manager interest. Around half an hour later, the final terms were set, with no further book update.

Yesterday, a similar result befell Deutsche Pfandbriefbank (pbb), which struggled to create sufficient demand for a €500m six year.

A syndicate banker away from the leads said the outcome was likely a combination of investors protecting performance and being pickier when choosing to buy lesser-known names at prevailing levels.

“People make a big differentiation between names in deeply negative territory – more so than the tenor,” he said, noting that although it has been six and seven year trades that struggled this week, Bawag PSK had only €600m of orders for a €500m 10 year two weeks ago.

“So, it was not just a question of fair value and spread,” he added. “This says a lot about the investor base for the name.”

He saw fair value at 10bp, based on its 2024 outstanding sub-benchmark at 8bp.

“If you extend the curve to 10bp, 14bp doesn’t look that good,” he added, “however 14bp is 55bp over bunds, and that’s offering a pretty decent pickup for the Germans.”

A syndicate banker at one of Hypo Tirol’s leads said he was “a bit puzzled” by the outcome, noting that the new issue offered a favorable pick-up over a recent Hypo Noe seven year, which, according to pre-announcement comparables circulated by the leads, was trading at plus 7bp. A benchmark-sized transaction – compared with previous Hypo Tirol sub-benchmark issuance – from an Austrian “pretty rare animal” would usually attract more investors, he said.

He argued that under normal circumstances, the trade should have worked.

“The problem was that today’s circumstances were probably not as normal as we thought they were,” he said. “It’s one of those days when things have hardly changed – it’s still the same mix of old news, Trump, Syria and Brexit – but it’s always a day-to-day question whether people will take this more seriously than the day before.

“Unfortunately, today, it was our trade that got caught.”

The lead banker said the decision to report a book size of €400m-plus during execution was intended to provide full transparency to investors – the lack of book updates for pbb’s issue yesterday was cited as a factor potentially contributing to it failing to gain traction.

“We were told by a bank on their trade they did not get a single order after not saying anything,” said Hypo Tirol’s lead, “so we went for the truth, to help investors get the full picture.”

However, the strategy did not work as hoped, he said.

“We thought that clarity on the book stage would appeal to those waiting on the sidelines,” he added, “but the transparency spillover effect did not work.”