NordLB CBB attracted over €1bn of demand to the first ever renewable energy covered bond today (Monday), a €300m no-grow five year deal that offered investors a rare positive yield in the middle of the curve. DZ Hyp is set to test appetite for four year paper tomorrow.

After initially announcing the inaugural trade in October but then holding off issuing, NordLB Luxembourg Covered Bond Bank (NordLB CBB) re-announced its mandate on Thursday, following an upgrade to the issuance’s rating, to Aa2, by Moody’s at the start of last week.

This morning leads ABN Amro, Commerzbank, Crédit Agricole and NordLB went out with guidance of the mid-swaps plus 28bp area for the €300m no-grow five year lettres de gage énergie renouvelables. After around 55 minutes, books were reported as being over €500m, excluding joint lead manager interest, and after around an hour and 35 minutes, guidance was revised to 24bp+/-1bp, WPIR, on the back of orders over €850m, excluding JLM interest. The spread was ultimately fixed at 23bp on the back of over €1bn of demand, excluding JLM interest.

A syndicate banker away from the leads said the transaction was successful and noted that it came at a pick-up to other five year trades.

“Given we are still living in super-liquid markets,” he said, “investors would have bought it at least for the reason it was a little bit wider than some other stuff, and that it’s most likely going to tighten in the future.”

A lead syndicate banker said bookbuilding went relatively quickly, especially for a €300m no-grow sub-benchmark.

“We opened just before 9am EST and investor interest came very quickly,” he said. “At the end of the day, we finished with a very granular, high quality order book well above €1.1bn with no price sensitivity.”

He saw fair value in the context of the low 20s, based on the issuer’s outstanding public sector-backed March 2024 trading at 17bp, implying almost no new issue premium.

“Given it’s a new product, it’s quite tricky to put a price on this,” he said. “If you add a few basis points to the March 2024s for the sub-benchmark status and also for it being a new product, you end up somewhere in the low 20s for fair value.”

With more than 80 investors involved, it was a very positive outcome for the issuer, he added.

Another lead syndicate banker said that given the transaction was a sub-benchmark, ineligible for CBPP3 purchases, and LCR Level 2A, the investor base available to the issuer was not the widest.

“It was not necessarily the easiest of sells,” he said. “There were some hurdles here and there.

“But it had a very strong framework, and in terms of spread, we were coming with a positive yielding five year, so we came out on top.”

The deal was priced to yield 0.077%.

A syndicate banker at one of the leads said the green covered bond was unique, but potentially represented a “remarkable” change for the sector.

“This is the first time we’ve seen a covered bond with a cover pool consisting of renewable energy projects,” he said, “so hopefully going forward we will now see more jurisdictions including these asset types in their legislation.”

DZ Hyp today announced plans for a €750m no-grow four year mortgage Pfandbrief, which is expected to be launched tomorrow (Tuesday), subject to market conditions. DZ, Erste, ING, LBBW, TD and UniCredit have the mandate for the transaction, which is set to be the shortest-dated euro benchmark of the year so far and only the third with a negative yield.

According to pre-announcement comparables circulated by the leads, DZ Hyp June 2023s were at minus 4bp, mid, and its March 2024s and December 2024s at minus 3bp. Commerzbank January 2024s and Helaba July 2024s were both at minus 2bp, while Helaba €1.25bn January 2025s issued on Wednesday in the previous shortest-dated trade of the year were at minus 1bp.

A syndicate banker cited Helaba’s negative-yielding 2025 issuance – as well as a negative-yielding long seven year LBBW deal that opened 2020 euro benchmark supply – as evidence that DZ’s shorter-dated trade will work.

“A four year should go very well,” he said, “given you naturally have limited supply around that part of the curve and you still have bank treasuries that will be looking to bid for that paper.”

Oberbank has mandated a €250m no-grow 10 year sub-benchmark for launch in the near future via DZ, Erste and LBBW. According to pre-announcement comparables circulated by the leads, its June 2033s was trading at 7.5bp over mid-swaps. DekaBank has also announced plans for a €250m 15 year sub-benchmark public sector Pfandbrief.