Berlin Hyp is set to reopen euro benchmark covered bonds tomorrow (Tuesday) with the first new issue since 8 July, a €500m 10 year green Pfandbrief that is the German lender’s 10th green bond and first since it announced an enhanced target of a third of its loan portfolio being green by 2025.

The mandate for the €500m no-grow mortgage Pfandbrief was announced this (Monday) morning, with Crédit Agricole, DZ, HSBC, JP Morgan and LBBBW as leads, and syndicate bankers told The CBR they expect launch tomorrow.

Following a €500m no-grow eight year green mortgage Pfandbrief on 30 June, Berlin Hyp’s new issue will be its 10th green bond, with six of these being covered bonds and four having been senior issues.

Upon releasing its first half results on 13 August, the German bank announced a new target for lending against green buildings to comprise one-third of its portfolio by 2025, after having achieved a 20% target ahead of schedule last year. It is also aiming to provide full transparency on the climate performance and risks of its portfolio, it said, and to develop “transformation loans” to finance energy-related refurbishments.

“With our commitment to the Paris Agreement and the Climate Paths of the Federal Republic of Germany, the bank has therefore defined a whole package of measures in 2020 to support the path to a successful transformation of the building sector,” said Sascha Klaus, chair of the board of management of Berlin Hyp.

Berlin Hyp’s new issue will be the first euro benchmark since South Korea’s Kookmin Bank sold a €500m five year on 8 July. Before that, Berlin Hyp’s eight year mortgage Pfandbrief was the last CBPP3-eligible deal. Berlin Hyp also bookended euro issuance in summer 2019, selling deals on 10 July and then 20 August.

A lead syndicate banker said late summer supply in other asset classes has already shown the SSA and credit markets to be open, and although most issuers have no pressing need to come to the covered bond market, there is little benefit to waiting for those who are interested.

“The EU will be coming to the market in September and that will create some disruption in the SSA market, and also covered bonds, especially at the long end” he said. “Issuers may be looking to be done and dusted before then.

“And do you really expect spreads to significantly tighten any time soon?”

He said the global macroeconomic backdrop has meanwhile remained benign, as demonstrated by equities reaching new highs.

“Yes, Covid cases are up,” he added, “but they don’t seem to be prompting new lockdown measures. That gives everyone a little more confidence that it will not have a drastic impact.”

Another lead banker said he expects the deal to come with a negligible new issue premium against the backdrop of low supply.

“Maybe investors will tell us that the time of zero NIPs is over,” he said, “but honestly, to the extent that people don’t have much choice, I think we will get away with zero or very close to zero.”

According to pre-announcement comparables circulated by the leads, Berlin Hyp green July 2027s and July 2028s were trading at 4bp over mid-swaps, mid, as was its May 2029 non-green paper. The 10 year mid-swap rate was around minus 0.224% this afternoon.

Bankers said that while there is the potential for further supply this week, the reopening of the market could prove short-lived, with most issuers remaining well-funded.