Deutsche Hypo today (Tuesday) achieved a similarly modest outcome to that of Berlin Hyp yesterday, when it issued another €500m no-grow seven year mortgage Pfandbrief, which attracted some €780m of orders amid a “somewhat fatigued” covered bond market overshadowed by senior supply.

Having announced the mandate yesterday (Monday) after Berlin Hyp had priced its deal, Deutsche Hypo leads DZ, HSBC, Natixis, NordLB and UniCredit this morning went out with guidance of the mid-swaps plus 5bp area for the €500m no-grow seven year mortgage Pfandbrief. After around an hour and a half, books were reported as being over €500m, excluding joint lead manager interest, and after around two hours and 20 minutes, guidance was revised to 4bp+/-1bp, WPIR, on the back of over €700m orders, including €50m JLM interest. The spread was ultimately set at 3bp on the back of over €780m of demand, including €50m JLM interest.

A syndicate banker at one of the leads said the outcome matched that of Berlin Hyp’s €500m no-grow seven year, and that together, the pair reflected a “somewhat fatigued” market that was still processing a high volume of issuance seen earlier, in January.

“It was very much the same game as yesterday,” he said, “the difference being only a couple of basis points due to the secondary market delta between the two.

“Other than this, I think this is as good as it gets at the moment,” he added. “Books are no longer three or four times done, but one and a half times done – it is what it is.”

He said the execution took slightly longer than Berlin Hyp’s due to the lower rating of Deutsche Hypo’s issue (Aa1) and its association with the recent recapitalisation of parent NordLB.

“These two factors presented somewhat of an uphill battle for us,” he said, “but otherwise, it was more or less the same.”

The lead banker noted that following its first book update of orders over €500m, excluding JLM interest, the book continued to grow, peaking at over €780m, whereas yesterday’s trade from Berlin Hyp saw orders drop after its book update of over €750m, excluding JLM interest, to over €700m, excluding JLM interest at close.

“They developed very much in parallel,” he said, “with the big exception being that on gross terms, we were higher, but if you net out the JLM, it was almost head to head with BHH.”

He said that considering the challenges tied to the issuer’s name, and that the market has been markedly less receptive since mid-last week, it had achieved a very good result, offering 2bp of new issue premium.

“In the end, we had a decent, relatively well diversified book,” he added, “and at mid-swaps plus 3bp, with very little exception, everyone was happy to follow, so no complaints.”

Another lead banker said that although Deutsche Hypo and Berlin Hyp have similar German-focused investor bases, the latter has stronger name recognition, and in the secondary market Deutsche Hypo was trading 3bp back of Berlin Hyp.

“We started with a higher new issue premium than yesterday, 5bp,” she added, “and moved only 2bp to land at plus 3bp.”

She said the issuer could have moved 1bp tighter, but wanted to retain the quality of the book, and ultimately made the right decision, since after guidance was revised to 4bp+/-1bp orders grew from €500m to €780m.

“Pretty much all of it stayed at plus 3bp,” she added, “and in the end, it was a very decent print.”

A syndicate banker said the two deals are not entirely representative of the generic appetite for euro covereds.

“I’m still confident the covered bond market is in very good shape,” he added, “and I wouldn’t read much into these two trades to assess the shape of the market as a whole.”

But another said the transactions’ reduced order books showed there was clear investor fatigue for such low-yielding paper – Deutsche Hypo’s seven year was priced to yield minus 0.152%, while Berlin Hyp’s 0.201% was the most negative yield for a German Pfandbrief with a tenor of seven years or longer, according to an analyst.

“Starting with La Banque Postale last Wednesday,” said the syndicate banker, “it feels likes like investors are becoming more wary.”

He said that following a recent strong rally in rates, the covered bond market was also having to contend with a high level of senior supply enjoying multiple times subscribed order books akin to what was achieved by a large succession of covered bonds earlier this year.

“This is probably where investors see more value at the moment, he said.

He added that though deals are still crossing the finish line, the past two transactions reflected the buying of a more traditional covered bond investor base.

“They’re simply buying because it’s a covered bond,” he said. “We’re not seeing strong performance potential or investors playing a rates move by using covered bonds as an instrument.”