Helaba showed the shorter end of the covered bond market to be open to core issuers in spite of remaining in negative territory, as a €1.25bn five year launched as part of a dual-tranche trade attracted over €1.7bn of demand. Bawag PSK meanwhile added to Austrian supply.

Landesbank Hessen-Thüringen attracted over €2.7bn of combined orders to its dual-tranche transaction, which comprised a €750m 10 year public sector Pfandbrief alongside the €1.25bn five year mortgage Pfandbrief, which is the shortest-dated euro benchmark of the year so far.

After announcing the mandate yesterday (Tuesday), Helaba leads Barclays, Commerzbank, Crédit Agricole, Helaba, ING and NatWest this morning went out with guidance of the mid-swaps plus 2bp area for the five year tranche, and plus 5bp for the 10 year tranche. The five year was ultimately priced at minus 1bp and sized at €1.25bn on the back of over €1.7bn of demand, and the 10 year at 1bp and €750m on the back of orders over €1bn.

A syndicate banker away from the leads said both tranches were successful.

“It clearly went well,” he said. “I found it interesting they chose different cover pools for each tranche, but in the end, they priced in the same perimeters.”

The five year tranche was priced at a yield of minus 0.163%, whereas the focus of year-to-date supply has been on longer-dated positive yielding issuance.

“Helaba is an interesting trade from an issuer point of view as it shows that the five year space is open at these kind of all-in yield levels,” said another banker away from the leads.

A syndicate banker at one the leads said the 10 year tranche was the more straightforward transaction, given there have already been three issues in the maturity since the beginning of the year.

“There’s been quite a lot of supply, so we knew what to expect in terms of landing price and sensitivity from accounts,” he added.

He said the smaller order book in comparison to the five year was due to increased price sensitivity and investor fatigue, as well as the five year being preferred from an absolute spread perspective.

“A lot of trades have moved quite substantially from guidance to pricing this week,” he said, “so many investors may have thought against buying another trade that prices with only 1bp of new issue premium, which is exactly what we did here.”

He said the outcome of the five year tranche was initially less easy to predict, but that ultimately it proved the more popular trade, particularly with bank treasuries, with such paper scarcer.

“For an investor, it’s extremely hard to get to the point where you can find €50m of five year Pfandbrief,” he said, “because at this part of the curve, you don’t have new issues where you can pick up blocks.”

He saw fair value at minus 2.5bp for the five year and mid-swaps flat for the 10 year, respectively, based on Helaba’s curve, and LBBW July 2027 paper trading at minus 1bp.

After announcing Bawag PSK’s mandate yesterday, leads Banca IMI, DekaBank, Deutsche, Erste and LBBW this morning went out with guidance of the mid-swaps plus 10bp area for the €500m no-grow mortgage-backed trade. After around 40 minutes, books above €1bn were reported, and the deal was ultimately priced at 6bp on the back of €1.7bn of demand.

A syndicate banker at one of the leads said they built a strong order book very quickly, completing the trade in under two hours, and achieved a solid outcome for the issuer, with 2bp-2.5bp of new issue premium. He put fair value at around 3.5bp based on its January 2027s and October 2029s at 2.3bp and 4.4bp, respectively.

“We had a very well diversified book that was more than three times subscribed and had some 90 orders,” he added, “with good participation from all major jurisdictions and also some peripherals.”

A syndicate banker away from the leads saw fair value at 3bp and said the deal offered value to investors.

“It looked fair,” he said, “and a few basis points were left on the table.”

Another banker away from the leads said Bawag’s deal did not perform notably better than a January 2020 issue from UniCredit Bank Austria yesterday, considering both transactions started at the same price for the same size and were re-offered at the same level, yet today’s new issue was two years shorter.

However, he said it was one of the issuer’s better trades.

“We’ve seen a lot of Austrian covered bonds recently, the book was strong and execution was swift,” he added, “so it’s still a good development for them.”

Today’s three tranches totaling €2.5bn represent a drop from the heavy supply of the past two days, and the pace of issuance is expected to slow, particularly with banks entering black-out periods. However, a syndicate banker noted that a new issue from the Benelux is potentially in the pipeline for this week or next.