DZ Hyp printed the tightest euro benchmark since February today (Monday), a €1bn five year mortgage Pfandbrief that, despite carrying the most negative yield for a euro benchmark this year, attracted over €1.8bn of demand. UniCredit HVB is expected tomorrow with an eight year.

After announcing the mandate on Friday, this (Monday) morning, DZ Hyp leads DekaBank, DZ, Deutsche, Natixis, NatWest and Rabobank went out with guidance of the mid-swaps plus 4bp area for a euro benchmark-sized five year mortgage Pfandbrief. After around 40 minutes, books were reported as being over €1bn, excluding joint lead manager interest, and after around an hour and 20 minutes, the guidance was revised to 1bp+/-1bp, WPIR, and the issue size was set at €1bn, on the back of over €1.8bn of demand, excluding JLM interest. The spread was ultimately set at flat to mid-swaps, on the back of over €2bn of orders, excluding JLM interest. The allocatable book was over €1.8bn, excluding JLM interest, comprising 52 accounts.

DZ Hyp’s new issue is the shortest German Pfandbrief since January, and the spread of flat to mid-swaps is the tightest on a euro benchmark since February, when Berlin Hyp sold a €500m seven year mortgage Pfandbrief at minus 1bp.

The yield of minus 0.42% is the lowest of any euro benchmark this year, but syndicate bankers said this was not a major impediment, citing the pick-up over the Bund, which was 29.9bp.

“The negative yielding aspect has long gone away as an issue,” said a syndicate banker. “It’s more about buying from a spread perspective.”

By tapping into the belly of curve, DZ Hyp attracted pent-up demand from bank treasuries, he added.

Another banker away from the leads nevertheless described the yield as “pretty amazing”.

“But it’s still better than the alternative,” he added.

Syndicate bankers at and away from the leads generally saw the pricing as equivalent to between flat to 1bp through fair value.

A lead banker said he had expected pricing of 1bp over, where he put fair value.

“It’s probably very hard to convince your reporting line that you’d skip €1bn from the German flagship issuer because you thought it was 1bp too tight – that’s an uphill battle,” he added.

However, another lead banker put fair value flat to mid-swaps. According to pre-announcement comparables circulated by the leads, DZ Hyp June 2025s and November 2025s were quoted at flat, mid, on an i-spread basis, and its February 2026s at plus 1bp. They also cited BayernLB September 2025s at 2bp, LBBW September 2025s at flat, and Helaba September 2025s at 2bp.

A syndicate banker away from the leads said that a lack of supply and “dormant” secondary market meant such levels did not necessarily tell the full story, and that the ultimate spread was impressive.

DZ Hyp’s five year comes after 10 and 15 year benchmarks from compatriots Berlin Hyp and MünchenerHyp, respectively, in post-summer supply, and another lead banker said the new issue had demonstrated an option for issuers not in need of duration.

“MueHyp’s 15 year came at plus 7bp,” he added, “and you’re looking at 10 years shorter and 7bp lower in terms of spread.”

Spreads are unlikely to grind much tighter, give or take one or two basis points, said syndicate bankers.

“It looks to be very limited,” said one, “especially with EU issuance soon to be underway. To some extent issuers are trying pre-empt what demand is there.”

Although another banker had suggested non-German names had a greater chance of seeing their spreads tighten, he said that once EU issuance hit the screens, there is a risk that that some semi-core and non-core names could widen.

“You’re likely to see a divergence between German names and perhaps the Nordics and Canadians,” he said.

Germany took 72.2% of DZ Hyp’s deal, the Nordics 9.7%, Austria and Switzerland 6.5%, the UK 6.3%, southern Europe 2.7%, France 1.6%, and central and eastern Europe 1.0%. Banks were allocated 45.6%, central banks and official institutions 29.3%, and asset managers 25.1%.

UniCredit Bank AG (HVB) is expected to launch an eight year euro benchmark mortgage Pfandbrief tomorrow (Tuesday), after announcing its plans for the transaction this afternoon.

The new issue is set to be its third euro benchmark of the year, following a €1.25bn 12 year on 8 January and a €1bn 10 year on 18 June, and the first euro benchmark with an eight year maturity since Berlin Hyp launched a €500m green mortgage Pfandbrief on 30 June.

BBVA, Commerzbank, Natixis, NordLB and UniCredit have the mandate.