Bausparkasse Schwäbisch Hall surpassed expectations with its second ever euro benchmark today (Tuesday), a €500m no-grow 12 year Pfandbrief that achieved a peak €2bn of orders to achieve pricing inside fair value, with the issuer’s credit as well as prevailing market dynamics both cited in its success.

Following a mandate announcement yesterday (Monday), Bausparkasse Schwäbisch Hall (BSH) leads BayernLB, DZ, Natixis, Swedbank and UniCredit this morning went out with initial guidance of the mid-swaps plus 4bp area for the April 2033 mortgage Pfandbrief. After around an hour, the leads reported books above €1.1bn, excluding joint lead manager interest, and after around an hour and three quarters, they revised guidance to mid-swaps flat+/-1bp, will price in range, on the back of books above €2bn, including €195m JLM interest. The spread was subsequently set at minus 1bp on the back of more than €2bn of demand, including €195m JLM interest, and the final book was above €1.7bn, including €145m JLM interest.

Syndicate bankers away from the leads were surprised at the size of the book, given that the trade is only the second euro benchmark from the German building society, which debuted just six months ago, in October 2020.

“I have only superlatives for this transaction,” said one. “They got a very granular order book and high oversubscription considering they are a new issuer.

“And the negative print beyond 10 years for a Pfandbrief is super-tight.”

Bankers at and away from the leads put fair value at around mid-swaps flat, with the issuer’s October 2030s quoted at minus 1bp, mid, according to pre-announcement comparables circulated by the leads.

As well as the prevailing scarcity of covered bond supply, the outcome was attributed to the popularity of the credit among BSH’s domestic investor base.

“It has one of the cleanest cover pools,” said a syndicate banker away from the leads. “German investors love the name and the Bausparkasse model.”

The issuer is part of the same financial group as DZ Hyp, whose March 2030s and April 2029s were quoted at minus 3.5bp.

A lead syndicate banker said that alongside the domestic investor base, the issuer was able to attract an impressive number of non-German accounts to accumulate the large order book for its second euro benchmark, standing it in good stead for future issuance.

“It went remarkably well,” he added, “and the issuer is apparently very happy as it ticked every box they had been hoping to tick.”

Another lead banker said a recent back-up in yields was supportive of the 12 year trade, which was priced with a 0.2% coupon. He noted that the maturity – rare for the German market – suited the issuer and said that any maturity would have worked in today’s market.

“With such a €500m no-grow in an undersupplied market, it’s not easy to mess things up,” he added.

The other lead banker acknowledged that the 5bp move from start to finish could suggest the starting point was overly defensive, but said the level of demand clearly surprised to the upside, with little price sensitivity evident in the book.

“There was no question whether moving the last basis point was greedy or not, as there sometimes is,” he said. “Everything was pointing to minus 1bp.”

With all recent trades having been successfully executed and performing well, the other lead banker said the “winning streak” was also giving investors confidence to get involved at the tight prevailing levels.

Although the euro pipeline remains thin, a syndicate banker said a Nordic name not currently in blackout could decide to enter the market.