A €500m long six year Berlin Hyp green Pfandbrief achieved the tightest spread on a euro benchmark since July 2019 today (Tuesday), while Bawag PSK achieved a peak €1.65bn book on the longest ever Austrian benchmark, a €500m 20 year, as both deals quickly sold out.

Following a mandate announcement yesterday (Monday), Berlin Hyp leads Commerzbank, Crédit Agricole, LBBW, UBS and UniCredit went out with guidance of the plus 1bp area for the €500m no-grow January 2028 mortgage Pfandbrief. Within an hour books were above €1bn, including €95m joint lead manager interest, and after around an hour and three-quarters guidance was revised to minus 2bp+/-1bp, WPIR, on the back of more than €1.5bn of demand. The deal was ultimately priced at mid-swaps minus 3bp, with more than €1.2bn of orders, including €75m JLM interest, good at re-offer.

“It worked very, very well,” said a syndicate banker away from the leads. “They can’t do anything wrong and keep hitting it out the park.

“Berlin Hyp is an extremely well followed issuer and even has a green curve in covered.”

The euro benchmark is the first to be priced through mid-swaps since Berlin Hyp sold a (non-green) €500m seven year at minus 1bp in February 2020, and the tightest since the issuer sold a €500m eight year green Pfandbrief at minus 3bp in July 2019. The new issue’s pricing of minus 3bp was seen as flat to fair value by bankers at and away from the leads.

A lead banker attributed the deal’s success to a variety of factors, including notably the shorter maturity in a year when long-dated supply has dominated, and the green nature of the transaction.

Pricing through mid-swaps was not considered a barrier at any time, he added, but rather it had not been clear from the outset if minus 3bp or only minus 2bp would be achievable. He noted that investors tend to be resistant to buying Pfandbriefe at a pick-up to KfW of less than 8bp-10bp, and that a recent five year issue for the German agency was priced at minus 11bp and trading around minus 12bp, meaning that with its longer dated new issue Berlin Hyp had ended up with pricing at the very tight end of what is generally considered achievable.

“That’s a very good outcome,” he added. “Even with the drop of €300m in the book on the final pricing, there wasn’t a whole lot of sensitivity.”

A syndicate banker away from the leads said the new issue had also been something of a test for negative yields, being the first in negative territory since the recent back-up in yields and rates volatility. The transaction was priced at a yield of minus 0.252%.

Bawag PSK also announced its mandate yesterday, and leads BNP Paribas, Deutsche, DZ, Erste and NordLB this morning went out with guidance of the mid-swaps plus 8bp area for the €500m no-grow 20 year Austrian covered bond. Books were above €1bn after around three-quarters of an hour, according to a syndicate banker at one of the leads, and guidance was revised to 5bp+/-1bp around an hour later on the back of more than €1.5bn of orders. The new issue was ultimately priced at 4bp, with around €1bn of orders good at re-offer.

A syndicate banker away from the leads said he was positively surprised at the development of the order book.

“It is not a given to see you can get such good demand so quickly for such an issuer and such a maturity,” he said.

A lead syndicate banker agreed that a Bawag 20 year was perhaps not the most natural candidate for such execution, but said the issuer had been keen to test the very long end of the curve, which fitted nicely into its ALM management and allowed it to take advantage of flat credit curves, and could be pleased with the result.

The deal is the longest-dated Austrian euro benchmark, with Bawag and its compatriots only having previously extended as far as 15 years.

Syndicate bankers had expected an update to the European Central Bank’s stance last Thursday to contribute to stability and investor confidence, and said this was borne out by today’s trades and notably the 20 year.

“It did better today than it would have done last Wednesday,” said one. “The ECB succeeded in bringing some stability, so investors know rates won’t fall out of bed any time soon.

“But the underlying theme still lingers.”

He said that the lack of covered bond supply has also helped overcome ongoing concerns investors might have in respect of yields.

Syndicate bankers highlighted that today’s two euro benchmarks had fared best in a market where a total of 10 tranches hit the FIG market, from covered bonds to Tier 2, with trades further down the capital structure generally experiencing less enthusiasm amid higher supply in those sectors.

Všeobecná úverova banka (VUB) is expected to hit the market tomorrow (Wednesday) with a €500m no-grow five year covered bond via Danske, Erste, IMI-Intesa Sanpaolo, KBC and LBBW. The deal will be the first Slovak euro benchmark since VUB sold a €500m five year in June 2020.

And the Mortgage Society of Finland today updated previously announced plans to tap the market with a €300m seven to 10 year deal in the second half of the month, with launch now expected tomorrow via DekaBank, Natixis, Nordea and Swedbank.