UniCredit Bank AG (HVB) is set to return for a second euro benchmark in 2021 with the expected launch of a 10 year benchmark-sized Hypothekenpfandbrief tomorrow (Tuesday), and recent moves in rates are expected to impact the level of demand and new issue premium.

DZ, Helaba, Natixis, NordLB and UniCredit have the mandate for the new issue, which was announced today (Monday).

HVB tapped the market as recently as 13 January, with a €500m 15 year.

A lead banker said the “popular” 10 year maturity is almost guaranteed to succeed given the scarcity of fresh supply. The new issue will be the first since a €500m 20 year for NN Bank on Tuesday of last week (23 February), which was the last of only three euro benchmark covered bonds in February, following 10 and then 15 year deals for Argenta Spaarbank and Caffil, respectively.

“You can pick whatever maturity you want,” said the lead banker, “as there will always be more potential buyers than sellers in this environment.”

Ten year yields were considerably less attractive to investors two weeks ago, he noted. The yield on the 10 year Bund was today down from last week’s highs, but still some 15bp higher than when Argenta Spaarbank sold the last 10 year covered bond on 2 February with a yield of minus 0.135% on 2 February. The last German 10 year, a €500m mortgage Pfandbrief from Berlin Hyp on 19 January, yielded minus 0.217%, while HVB’s €500m no-grow 15 year on 13 January offered a positive yield of 0.013% and was priced at 3bp over mid-swaps on the back of some €2.1bn of demand.

According to pre-announcement comparables circulated by the leads, HVB June 2030s and January 2031s were quoted at minus 1.6bp and 2.1bp, respectively.

Given that NN Bank’s 20 year was priced at 2bp over mid-swaps, a banker away from HVB’s leads said she expects the new issue to price towards flat to mid-swaps.

“Everything that has come from the core has priced in the very low single-digits, so it’s very difficult to think about anything else.”

Another syndicate banker said that given the recent volatility in rates, a new deal at the longer end of the curve would potentially have to offer 1bp-2bp of new issue premium, as opposed to pricing flat to fair value in line with recent transactions.

“But this is only a theory,” he added, “because investors may just want the bond regardless, as there’s been little supply.”

While another banker said that it is encouraging that the first trading session of the new month has started with a mandate announcement, the same was true of February, only for very limited supply to emerge over the course of the month.

“Maybe March stands a chance to look a little more active – if only for the reason that it represents a change,” he said, “but it’s still not easy to detect the natural candidates for issuance at the moment.”

See today’s article on updated 2021 supply expectations for more on the outlook