Aareal Bank attracted around $1.25bn of orders to a $750m four year mortgage Pfandbrief today (Wednesday), the second benchmark dollar covered bond in less than three weeks, which syndicate bankers said demonstrated the viability of the Reg S market for certain issuers.

After announcing the mandate yesterday (Tuesday), Aareal Bank leads Citi, Deutsche, HSBC, LBBW and NatWest went out this morning with guidance of the mid-swaps plus 27bp area for a four year US dollar benchmark-sized Hypothekenpfandbrief. After around two hours and five minutes, books were reported as being over $800m, including $70m joint lead manager interest, and after close to four hours the spread was set at 24bp on the back of around $900m of demand, including $70m JLM interest, with the issue size expected at $650m. It was ultimately sized at $750m (€622m) and the final book at re-offer was around $1.25bn, including $70m JLM interest.

A syndicate banker away from the leads said the deal represented a good result for a Reg S format covered bond, particularly from Aareal.

“It’s nice to see a couple of dollar deals during the course of the past month,” he added, “with Deutsche Pfandbrief bank as well as Aareal.”

Deutsche Pfandbriefbank launched a €750m three year deal just over two weeks ago, on 19 January, at 23bp.

The two deals suggest there is still merit in smaller issuers looking at the dollar covered bond market, said the syndicate banker, and that the depth of that market in Reg S only format is still more than sufficient to offer reasonable size and funding cost.

A lead banker said the results was “very strong”, with the €1.25bn book being the largest Aareal has achieved in dollars.

The maturity is meanwhile the longest on a benchmark dollar Pfandbrief since a Helaba $600m four year in August 2016.

“That it worked so well is a testament to the fact it was a good call to go longer,” said the lead banker, “and it worked best given their cover pool.”

He noted that the dollar issue also provided matched currency funding for Aareal, even if the level was more expensive than euros. The syndicate banker away from the leads suggested the differential was around 7bp, based on a euro equivalent level of 5bp and a theoretical new four year euro benchmark coming at minus 2bp.

“That makes sense for relatively small issuers who carry a relatively low senior unsecured rating,” he added, “for whom taking cross-currency derivatives are relatively expensive.”

Another banker away from the leads said he expects dollar covered bond supply to remain limited given that senior paper is priced very tightly in dollars.

“It’s not really worth using your collateral when you’re getting such attractive levels on your senior unsecured issuance, anyway,” he said, “particularly given the ongoing central bank support that’s available for most issuers, too.

“So it’s tending to be some of the smaller, niche issuers who are utilising covereds in general in the past month – supply is not exactly high.”