A back-up in swap rates afforded Münchener Hypothekenbank a window of opportunity for a 15 year Pfandbrief with a positive yield on Tuesday, according to the issuer’s head of strategic funding and ALM, with the speed and strength of demand for the €500m no-grow deal ultimately exceeding expectations.

The new issue was MünchenerHyp’s first euro benchmark of the year, its last having been a €500m 15 year on 1 September 2019.

“We participated in the TLTRO in June as the conditions were very attractive for us,” Martin Schmid, head of strategic funding and ALM, Münchener Hypothekenbank, told The CBR, “and having replaced some funding with the TLTRO, it was not so necessary to issue Pfandbriefe.

“But we have very long dated retail mortgage loans on the asset side, so we want to set up some matched funding on the liability side, and it made sense to issue a long dated Pfandbrief, with a tenor of 15 years.”

The issuer therefore monitored the market for the appropriate circumstances in which to issue such a maturity.

“Whereas you can print a 10 year on many occasions throughout the year,” said Schmid, “a 15 year is more complex and not possible in every market environment, because you need to have a positive yield – in my opinion this is an essential component of a successful 15 year trade.

“Swap rates were so negative in the last few months that this was out of reach, but as swap rates rose in recent days we saw the opportunity to go out and print one.”

Although MünchenerHyp had already decided to approach the market this week, he said it was encouraged by the success of the first post-summer euro benchmark issuances in the SSA and covered bond market. The issuer was also happy to enter the market well ahead of the European Union entering the market later this month with issuance to support its SURE programme, which Schmid noted could affect Pfandbrief spreads.

After a mandate announcement on Monday, on Tuesday morning leads Crédit Agricole, Deutsche, DZ, Helaba and UniCredit opened books on the €500m no-grow September 2035 mortgage Pfandbrief with guidance of the mid-swaps plus 11bp area. Within 45 minutes, orders passed €1bn, and after around an hour and 15 minutes, guidance was revised to 8bp+/-1bp, will price in range, on the back of over €1.6bn of demand. The deal was ultimately priced at 7bp over – implying around 1bp of new issue premium and equivalent to a yield of 0.128% – with more than €1.8bn of demand from over 70 accounts good at re-offer.

“We are very happy with the size of the orderbook, which greatly exceeded our expectations,” said Schmid. “What was particularly impressive was the speed at which the book developed – gaining more than €1bn of orders in the first 45 minutes represented very strong momentum.

“The pricing was also better than anticipated,” he added. “It’s a new issue premium of 1bp and that’s a brilliant result for us. To have been able to build the book so quickly and achieve such an attractive spread reflects how much investors like our Pfandbriefe, and it was very impressive to see that.”

MünchenerHyp could yet approach the market with a further benchmark Pfandbrief this year, according to Schmid, but he said no decision had been taken in this respect, or whether any such issue might be in ESG format, which it remains committed to – on 21 August, for example, it sold a CHF200m eight year green senior preferred bond.

Click here for earlier deal coverage.