Successful summer supply in other asset classes and a potentially busy September encouraged Berlin Hyp to restart euro benchmark covered bond issuance with a €500m five year yesterday (Tuesday) that attracted a peak €2.5bn of orders – a record for the issuer, according to BHH’s Bodo Winkler-Viti.

Yesterday’s new issue was the first euro benchmark covered bond since 8 July and represented the earliest post-summer reopening of the market since 2017. However, Winkler-Viti (pictured), head of funding and investor relations at Berlin Hyp (BHH), noted that the holiday season is already over in most German states, and that the market backdrop was healthy.

“We already saw in recent weeks that, even if there were not so many deals in Europe, there were some and these were very well received,” he said. “So apparently investors were up and running at their desks.”

In the first week of August, for example, Barclays issued a €1.5bn senior deal, KfW tapped a benchmark for €1bn, and Volkswagen Financial Services sold a €2.5bn three-tranche bond.

Berlin Hyp also pre-empted a potential pick-up in supply in September, when even more market participants are back.

“It was beneficial going early to avoid a period where there is much more traffic on the street,” said Winkler-Viti. “My understanding is that we are awaiting the EU again, and their bonds are huge and draw a lot of attention, so our intention was to avoid being in too crowded a market.

“We had a deal to do in Q3, so why wait any longer?”

2021 is the third year in a row that Berlin Hyp has been the first to issue after the summer break.

“We are not chasing any records,” said Winkler-Viti. “But these transactions in late August worked very well in the last two years, and although that is no reason why that should be the case every year, it gave us a degree of comfort.”

After a mandate announcement on Monday morning, leads Commerzbank, DekaBank, HSBC, UBS and UniCredit yesterday morning went out with initial guidance of the mid-swaps plus 2bp area for the €500m no-grow August 2026 mortgage Pfandbrief. The spread was fixed at minus 2bp on the back of books above €2bn, and the final book at re-offer was more than €2.1bn, including €60m of joint lead manager interest.

The trade is the first five year German Pfandbrief benchmark of the year, and the lack of overall covered bond supply in the maturity was cited by syndicate bankers away from the leads as a factor in the deal’s success.

With Berlin Hyp having February 2026 and February 2027 benchmarks outstanding but nothing in between, Winkler-Viti said the August 2026 maturity fitted into its curve well, noting the Pfandbrief Act’s 180 day liquidity requirement. The new issue is meanwhile the shortest-dated of four euro benchmarks the issuer has sold this year – the others having been 10, long six, and 12 year trades.

“The average has been around 10 years,” said Winkler-Viti, “which is longer than the average maturity of our new lending business, so the aim was also to reduce that, to better match our assets and liabilities.”

“We also thought that five years should be very attractive for investors who have seen almost exclusively quite long dated bonds so far this year, with more than 60% of all new covered bond issuance so far in 2021 being of 10 years or longer, and five years or even shorter very rare.”

He further noted that the relative value versus Bunds and other SSAs was quite high – the new issue was priced at 34.1bp over the Bund.

“And apparently investors really found it attractive, because the book peaked somewhere around €2.5bn, which we have never experienced before,” said Winkler-Viti. “The final order book of €2.1bn also meant the €500m no-grow size was 4.2 times covered, which is more than merely solid demand.”

The book included sixty-three investors and more than half of the paper was placed outside Germany, with 44% sold domestically, 15% to Asia, 12% to the Nordics, 10% to the Benelux, 6% to Switzerland, 4% to Austria, 4% to the UK, 2% to France, 2% to Italy, and 1% elsewhere. Central banks and official institutions were allocated 43%, banks 32%, funds 24%, and others 1%.

“So it was a very well chosen maturity,” added Winkler-Viti. “And the biggest compliment is always if another issuer does more or less the same trade only a day later.”

After Berlin Hyp’s deal was priced yesterday afternoon, a mandate for a €500m no-grow five year mortgage Pfandbrief for Deutsche Pfandbriefbank was announced, and the deal was launched this morning.

Winkler-Viti said Berlin Hyp expects to launch one more euro benchmark covered bond this year. It is meanwhile updating its green bond framework to align it with the EU Taxonomy.