Aareal Bank is set to launch the first benchmark covered bond of the year tomorrow (Tuesday), a €500m no-grow seven year mortgage Pfandbrief. But despite supportive conditions, little further supply is expected over the rest of the holiday-interrupted week, according to syndicate bankers.

The new issue will be the first benchmark since United Overseas Bank (UOB) launched a €1bn seven year on 24 November, with December completely bereft of supply. Aareal Bank’s launched its last euro benchmark as recently as 21 October, a €500m short six year Hypothekenpfandbrief, and since then only nine other euro benchmarks have been launched.

Given that parts of Germany and other European countries will be closed on Wednesday for public holidays marking Epiphany, this week’s window for issuance is limited, noted a lead banker, with Aareal preferring to come sooner rather than later.

“The issuer wanted to be the first one out,” he said, “and that’s why we were announcing today (Monday), to let others know it would be coming, so they might avoid coming on the same day or with the same tenor.

“Seven years is a nice tenor,” he added, “and they haven’t been really active in covered bonds for a long time, so I think it’s going to fly pretty well.”

Before Aareal’s October deal, the issuer had not launched a euro benchmark since June 2019.

According to pre-announcement comparables circulated by the leads, its outstanding July 2027 paper was trading at 1bp over mid-swaps, mid, while its July 2024s to July 2026s were trading at minus 1bp to flat.

Although issuers have in previous years sometimes paid higher new issue premiums when reopening the market, the current imbalance between supply and demand means Aareal is unlikely to be penalised as such, said the lead banker, and a banker away from the leads agreed.

“It’s a €500m no-grow,” he said, “so why should they be generous? There won’t be much flesh on the bone, but I presume they’ll find their buyers.

“It has worked in the past without being generous, so I can’t blame them for giving this another go.”

Another banker away from the leads said the transaction is almost guaranteed to succeed if today’s positive market backdrop is sustained.

“Everything on screens is positive,” he said. “The headlines are positive, and in terms of the spread landscape, not much has changed at all. If anything, everyone is back and keen to engage.”

BNP Paribas, Commerzbank, LBBW, Société Générale and UniCredit have the mandate.

Beyond Aareal’s issue, supply expectations for the week are modest, at best, with syndicate bankers reporting that few other issuers are looking to approach the market with any urgency.

“Of course, banks are looking,” said one, “but it seems no one is in a rush and I don’t have the impression market participants are afraid spreads will widen substantially.”

However, another said that while Wednesday’s public holiday is disrupting this week’s momentum, more names are eyeing the market, with the outlook expected to remain constructive.

“The window is in the next two weeks before blackout periods or after this,” he said. “You can go this week or next week and it won’t make that big of a difference, but I know that people will definitely want to buy some covered bonds again.”