Aareal sold its first euro benchmark in well over a year today (Wednesday), issuing a three times subscribed €500m short six year Pfandbrief at a marginally negative NIP, with bankers saying the attractive levels are enticing issuers into the primary market, with DZ Hyp due tomorrow.

Leads BNP Paribas, Commerzbank, Deutsche, Helaba and UniCredit went out this morning with guidance of the mid-swaps plus 5bp area for a €500m no-grow August 2026 Hypothekenpfandbrief. After an initial update reported books over €1bn, excluding joint lead manager interest, the guidance was revised to 2bp+/-1bp, WPIR, on the back of over €1.4bn of demand, excluding JLM interest. It was ultimately priced at 1bp, on the back of over €1.5bn of orders.

A syndicate banker away from the leads said the “rare” name demonstrated that, even after the EU has begun issuing – yesterday (Tuesday) it inaugurated its SURE programme with €17bn of bonds – the covered bond market has remained resilient.

“It shows that we are just continuing to have substantial demand given there is not that much supply,” he said.

The new issue is the German’s first euro benchmark of the year, its last having been a €500m eight year in June 2019.

In July an Aareal funding official told The CBR that the issuer had dispensed with plans to issue a benchmark earlier in the year in light of the onset of the pandemic and wide spreads, and then participated in a TLTRO (III) for the first time.

Another syndicate banker away from the leads said he was under the impression that Aareal had completed its funding for the year.

“It came truly out of the blue,” he said, “and given the last time round they did covereds was well over a year ago, it almost had some scarcity value to it, so it went well.”

A lead banker said that, like many issuers, Aareal could wait for an attractive level before entering the market as it had no pressing need for covered bond funding.

“We’re now hitting levels where a lot are thinking about pre-funding for 2021,” he said, “and with Covid, the US election and Brexit, there is not much room to go tighter in covereds.”

The €1.5bn-plus book is an impressive size for the issuer, added the lead banker, even though it took longer to gather than Wüstenrot Bausparkasse and Bausparkasse Schwäbisch Hall on €500m transactions last week.

“Around 11:00 CET we were done,” he said. “We had good orders sticking despite us moving 4bp, and when we showed we were going to land at 1bp, the book even grew a bit.”

Syndicate bankers at and away from the leads saw fair value at 1bp-2bp, implying a new issue premium of zero to minus 1bp. The lead banker put fair value at 2bp, based on Aareal’s outstanding July 2025s and July 2027s at 1.5bp and 2.5bp, respectively.

“For a name that usually isn’t able to get a big book and goes below the curve,” he added, “it shows the market is simply there for everyone.”

DZ Hyp is set to launch an eight year euro benchmark mortgage Pfandbrief tomorrow (Thursday), after announcing its plans today.

The new issue will be the German’s fourth euro benchmark this year, following issues in January, June, and the latest, a €1bn five year, on 7 September.

A lead banker said there is little doubt the transaction will be well received.

“Originally they had the intention of doing this a little later this year,” he said, “but then they saw how well the EU and other covereds were going and receiving massive demand, and thought that it’s probably not going to get a lot better than this.”

According to pre-announcement comparables circulated by the leads, DZ Hyp June 2028s and June 2029s were at 1.5bp and 2bp over mid-swaps, respectively. The lead banker said the new issue is likely to price flat to fair value.

“We all know it’s not exactly flavour of the month to leave something on the table,” he added, “at least not when it comes to a super-established issuer like DZ Hyp.”

A banker away from the leads said the new issue has the potential to print at an extremely tight level.

“It’s going to be interesting for that reason,” he said. “I put fair value at 1bp – I struggle to see it coming at zero, but it could.”

Barclays, BayernLB, Danske, DZ, ING and UniCredit have the mandate.