Deutsche Pfandbriefbank (pbb) achieved the tightest spread on a new dollar benchmark Pfandbrief in over 10 years with its largest benchmark in the currency on Wednesday, a $750m three year that was the first Reg S-only dollar benchmark in over a year and attracted some $1.25bn of demand.

The last Reg S-only dollar benchmark was a $500m three year for SMBC in October 2019, with dollar covered bond supply last year being 144A/Regs S – mainly from Canada, but including Australian and UK issuance – the last being a $750m (€621m) three year for Fédérations des caisses Desjardins du Québec at 25bp over mid-swaps in September.

Pbb’s last benchmark covered bond was a £500m (€563m) three year Sonia-linked issue in September priced at 38bp.

“As a commercial real estate lender, we do business in the UK and the US, so we benefit from sterling and US dollar funding to match currencies in the cover pool,” said Götz Michl, head of funding and debt investor relations at pbb (pictured).

Until last year, pbb had sold dollar benchmark Pfandbriefe every year since 2016, with its last previous issue having been a $600m three year in May 2019, priced at 32bp over.

“We tend to do one dollar benchmark a year,” said Michl. “We didn’t do a dollar issuance in 2020 and therefore we issued quite early in January 2021.”

He attributed last year’s absence to the fallout from the Covid-19 pandemic, noting that dollar covered bond spreads had been at unattractive levels versus euros for much of the year.

“We prefer to match the assets, but we could afford to wait and monitor the market,” Michl told The CBR. “In the summer and the autumn spreads were around the 30bp level.

“Now, the attractiveness of dollars has improved versus euros. So we paid only around 8bp more than euros, which is very low compared to previous foreign currency issues with a bit more than 10bp, maybe even 15bp.”

Following a mandate announcement last Tuesday lunchtime that led to IoIs of around $300m, on Wednesday morning leads Citi, Credit Suisse, Goldman Sachs and NatWest went out with guidance of the 26bp over mid-swaps area. After around an hour and a half, orders topped $750m, and after around three hours the spread was set at 23bp on the back of some $900m of demand. The size was ultimately set at $750m on the back of a final order book of $1.25bn.

“Ultimately we had $1.25bn of demand, which for a Reg S dollar covered bond is a pretty successful book,” said Michl. “We always try to issue a minimum of €500m-equivalent to have it LCR eligible in the highest bucket, which meant a minimum of around $650m. We then sized it up to $750m because the demand was there.

“As with euro bonds, we limited the size to $750m to avoid too large concentrations in our maturity profile. That also allows the bond to perform a little.”

The re-offer spread of 23bp is understood to be the tightest on a new dollar benchmark Pfandbrief for at least 10 years and one of the tightest of any dollar benchmark over the same period. The previous tightest new dollar Pfandbrief benchmark was a $750m three year green Pfandbrief for LBBW in May 2019, which was priced at 24bp over mid-swaps (LBBW tapped a $500m three year issue launched in February 2015 at 25bp for $250m at 22bp the following month).

Banks were allocated 65% of the issue, central banks and official institutions 24%, and funds 11%. Germany took 50%, Nordics 27%, Austria and Switzerland 7%, the UK 6%, southern Europe 3%, the Benelux 3%, Asia 2%, and others 2%.

Pbb’s last euro benchmark was a €750m eight year in January 2020. Michl said the issuer has no immediate plans to follow the dollar benchmark with a Pfandbrief denominated in euros.

“We certainly have some euro needs for this year,” he said, “but we need to consider the development of the portfolio and the attractiveness of the TLTROs.”