MünchenerHyp priced the longest covered bond of 2021 today (Friday) at the equal-tightest spread, although the €500m no-grow short 19 year achieved modest demand bankers said was commensurate with the maturity. The deal rounds off an opening fortnight in which supply has dropped some 70%.

The new issue took euro benchmark issuance this week to €5.75bn and year-to-date issuance to €6.25bn – €14.75bn less than the €21bn issued in the same period last year and, according to LBBW analyst Karsten Rühlmann some €10bn down on the €16.2bn average for the first nine trading days of the year over the past 10 years.

“Issuance is probably sluggish because companies remain flush with liquidity from past TLTRO III tranches and will have further opportunities to participate in tenders at attractive special terms,” he said.

“In addition, issuers used the initial trading days of the year to raise funds (issuance: €15.6bn) in the senior unsecured and subordinated segments in order to get all their ducks in a row early on.”

Syndicate bankers expect the covered bond market to remain undersupplied for the foreseeable future.

“I know of two names considering issuance next week,” said one, “but this is definitely not been the January we are accustomed to.”

He noted that in contrast to previous years, the majority of euro benchmarks have also been launched have been sized at €500m.

“This the new normal,” he added, “or so it seems.”

BPCE SFH is the only issuer publicly in the covered bond pipeline, having today announced plans for an eight and 15 year dual-tranche obligations de financement de l’habitat transaction via Crédit Agricole, Danske, DZ, Erste, Natixis, NordLB, Nykredit and UniCredit. According to comparables circulated by the leads, its June 2029s were trading at mid-swaps plus 1.25bp, mid, while French paper was quoted at 3bp-4bp over in the 15 year part of the curve.

After announcing its mandate yesterday (Thursday), Münchener Hypothekenbank (MünchenerHyp) leads Credit Suisse, DZ, Helaba, LBBW and UBS this morning went out with guidance of the mid-swaps plus 4bp area for a €500m no-grow short 19 year (October 2039) Hypothekenpfandbrief. After around an hour and 20 minutes, books were reported as being over €960m, including €150m joint lead manager interest, and after around an hour and 45 minutes, the spread was fixed at 1bp on the back of over €1bn of orders, including €50m JLM interest. The final book good at re-offer was over €875m, including €150m JLM interest.

Despite being the longest-dated benchmark of the year, MünchenerHyp’s new issue achieved the equal-tightest spread of the year, matching that of a €500m seven year Aareal mortgage Pfandbrief on Tuesday of last week (5 January).

The re-offer is also the tightest ever achieved by covered bond longer than 15 years, according to a lead banker.

“This is a testament to the depth of their investor following,” he said, “and that there’s plenty of cash for this name even though this is their third time back in the market in a short spell.”

MünchenerHyp issued a €500m 15 year Pfandbrief in September and a €500m 20 year in October.

The final order book was the first to fall below €1bn this year. A syndicate banker away from the leads said the level of demand was not unexpected in light of the very long maturity.

“It priced flat to fair value,” she added, “so it’s not a bad result.”

A lead banker also put fair value at 1bp, noting that the “rich” pricing and magnitude of the book were in line with previous MünchenerHyp issuance.

“So they acted the way they normally act and are super-happy,” he added.

He acknowledged that the preceding 20 year issue, in October, may have dented demand, with much of the issuer’s investor base probably having participated in that deal.

After announcing a maturity of “approximately 20 years” yesterday, the issuer opted for the October 2039 date this morning in order to offer a positive yield, according to the lead banker. The deal was ultimately priced to yield 0.033%.

“If yields had dropped drastically overnight, we would have still had the option to go a little longer,” he added, “but then you would have to move beyond 20 years, and this is uncharted territory for covered bonds and many would not consider, so we were lucky in this sense.”