MünchenerHyp attracted over €1bn of orders at re-offer to a €500m no-grow mortgage Pfandbrief in the rare 20 year maturity today (Tuesday), which syndicate bankers praised for an aggressive execution strategy that ended up with a zero to even slightly negative new issue premium.

After announcing the mandate yesterday (Monday), Münchener Hypothekenbank leads Commerzbank, DekaBank, DZ, NatWest and NordLB went out with guidance of the mid-swaps plus 6bp area for the €500m no-grow 20 year mortgage Pfandbrief. After around 45 minutes, books were reported as being over €1bn, and after around an hour and 20 minutes, the spread was fixed at 2bp on the back of over €1.4bn of demand, including €135m joint lead manager interest. The final book at re-offer was above €1bn, including €135m JLM interest.

A syndicate banker away from the leads said 4bp move from guidance to pricing was impressive for the “special” maturity, highlighting the strength of the market.

“Not that long ago we would of not have expected such a movement for this maturity,” he said.

“It’s a super-strong, solid and conservative name,” he added, “so if one should test the long end of the curve, it is the right issuer to do so.”

A lead banker echoed this sentiment.

“A 4bp move in 20 years is really like moving 6bp in a seven year,” he said, “so it’s a great result.”

Another banker away from the leads said the guidance was punchy from the outset, but the final result was “fantastic”. She highlighted that MünchenerHyp’s new 20 year issue came at the same level as the last euro benchmark, a DZ Hyp €1bn eight year on Thursday, and only 1bp wider than a Aareal €500m short six year the day prior.

“It confirms the investor appetite for some type of positive yield,” she said, “which I think was the main game-changer here – there were a lot of banks in the book, which is not the most traditional composition for a 20 year.”

The deal was priced to yield 0.020%.

Banks and financial services were allocated 34.9%, fund managers 26.4%, governments and agencies 21.5%, and insurance companies and pension funds 17.2%. Germany took 74.7%, the UK and Ireland 11.0%, Nordics 6.0%, Switzerland and Austria 3.2%, others 2.7%, and other Europe 2.4%.

The syndicate banker put fair value at 3bp-4bp, citing MünchenerHyp April 2039s at plus 3bp – the same level at which a lead banker quoted it yesterday – implying a negative 1bp-2bp new issue premium, with which an analyst concurred.

“Building a natural curve between 15 and 20 is not flat,” said the syndicate banker, “so to me, it should be around 3bp-4bp.”

However, syndicate bankers at the leads said the new issue priced at flat to fair value, with comparables circulated by the leads putting its September 2035s and April 2039s at 1bp and 1.5bp, mid, respectively.

“It’s very flat down there,” said one lead banker, “so this gave us the lead to say fair value was at 2bp, or maybe a little less, at 1.8bp or so.”

Dutch 2039 paper was quoted at 1bp-1.5bp, mid, according to the comparables circulated by the leads.

Despite a choppy market yesterday and today that impacted the supply of senior paper, the success of the new issue demonstrates there is definitely still demand for covered bonds, added the lead banker.

“Even though we were a bit on the edge, we made it with a positive yield,” he said, “so you can see that it was a really good move, and the €500m no-grow size gave us an opportunity to be aggressive on pricing.”

Another lead banker said while the marginally positive yield of 0.020% may have convinced some accounts to participate, no investors in the book highlighted that this was a pivotal factor.

“It may have helped,” he said, “but I don’t think it tipped any scale decisively.”

“Nevertheless, 2bp is quite an achievement for a 20 year,” he added, “so I think they are pretty satisfied down there in the south of Germany – and rightly so.”

Although there was some price sensitivity – some €400m dropped from the book after the spread was fixed – this constituted a “luxury problem” for the issuer, according to the lead banker, as the final book was still more than twice subscribed.

“We lost a little less than a third of the book from the peak to the eventual outcome,” he said, “but in the end, it’s €1bn for a €500m trade, so they were not in trouble at any stage.”

Given liquidity has been the driving force in the covered bond market this year, he added, issuers are in the driving seat to a possibly unprecedented extent.

“It may turn the other way at some stage,” he said, “but for the time being, this may take some time to materialise.”