Bausparkasse Schwäbisch Hall launched its inaugural euro benchmark covered bond today (Thursday), a €500m 10 year mortgage Pfandbrief that syndicate bankers praised for its almost four times subscribed book and pricing level versus comparable paper from top tier German names.

After a series of investor calls and then announcing the deal mandate yesterday (Wednesday), Bausparkasse Schwäbisch Hall leads Commerzbank, DZ, LBBW, Natixis and UniCredit went out this morning with guidance of the mid-swaps plus 8bp area for a €500m will-not-grow 10 year Hypothekenpfandbrief. After around 45 minutes, books were reported as being over €1bn, excluding joint lead manager interest, and after around an hour and 40 minutes, the spread was set at 4bp on the back of over €1.9bn demand, including €105m JLM interest.

A syndicate banker away from the leads said the new issue’s re-offer spread of 4bp – the tightest on a 10 year Pfandbrief since before the Covid-19 pandemic hit markets in March – was an “amazing” outcome, demonstrating the potential for increasingly tight Pfandbrief pricing levels.

“If you have a Schwäbisch Hall €500m getting done at plus 4bp for a debut trade,” he said, “the traditional Landesbank can issue extremely aggressively for the same size.”

He added it likely had a negative new issue premium, but was unable to place fair value precisely given an element of price discovery.

“It’s tough to say on this one,” he added. “However, if you look at the extremely tight names like Helaba and BHH, they have 10 years at flat to mid-swaps.”

Another banker away from the leads echoed this sentiment.

“When there is so much cash out there,” he said, “it becomes really difficult to say with any meaning what the right level is.”

The pricing was justified given the abundance of demand the issuer received, according to the syndicate banker, who was less surprised by the 4bp level given the broader compression of covered bond spreads.

“You open books and then inside an hour you’re completely oversubscribed,” he said. “What do you do? You tighten it and set the spread.”

In a more customary environment there would be a larger difference between top tier and debut issuers, he added, but in today’s market, 4bp between top tier names and an inaugural issue is far from negligible.

“At the end of the day, it’s a German name,” he said, “it’s a Pfandbrief, and the market is so compressed people are happy to take it with just a little bit of spread.”

A lead banker said the issuer was not expecting the “blowout” orderbook given it was an inaugural trade.

“It was a little bit of a shock,” he said, “but it shows investors were able to acknowledge the fact that the collateral is really high quality.”

While some likened the new issue to a €500m seven year benchmark debut launched by fellow German building society Wüstenrot Bausparkasse on Tuesday at 7bp, the lead banker said the comparison was unhelpful given the difference in the two offerings.

“We realised some wouldn’t know this or wouldn’t be willing to go all that way because it was an inaugural,” he said, “and this is why we started at plus 8bp.”

On the back of the sizeable orderbook, the issuer was able to tighten by 4bp to land at 4bp, he said, 1bp-2bp wider than comparable paper from DZ Hyp.

“While being a little cautious,” he added, “the backwind of high imbalance between supply and demand helped us a lot, but certainly a lot of investors knew the quality was very high here and that there is room for performance.”

An almost €2bn-sized book achieved for an inaugural transaction with a negative yield of 0.267% was exceptional, he added.

“This is a bond you have to have to broaden your portfolio,” he said. “It’s a new name and one which has quality behind it.”