Covered bonds offered relief from market volatility today (Tuesday) as DZ Hyp successfully inaugurated its green Pfandbriefe and BPCE SFH upsized a seven year deal on the back of strong demand, while UniCredit HVB is lining up a five year and LBBW is planning to issue a green Pfandbrief in dollars.

Today’s euro benchmarks came against the backdrop of a repricing in fixed income markets resulting from heightened inflation and monetary policy fears, but showed the asset class to remain open after a strong €2.25bn dual-tranche deal from ING on Thursday.

“Covereds have been a bit of a special animal,” said a syndicate banker. “We still have strong support from the ECB and we have entered the third year of net negative supply, so there are lot of technicals in favour of the product and resilience towards spread moves,” he said. “On the back of all the Bund moves and SSA moves, they had to follow by correcting themselves as well a little bit, but not to the same extent – anything shorter than 10 years is just 2bp-3bp wider versus pre-ECB levels.”

He meanwhile noted that covered bonds now offer a bigger pick-up over Bunds, with DZ Hyp priced at 61.3bp over and BPCE 66.7bp over in the seven year part of the curve, versus spreads of 35bp-50bp for issuance earlier in the year.

DZ Hyp’s plans for its long seven year mortgage Pfandbrief were announced last Wednesday and, following investor calls last week, was teed up yesterday (Monday). Leads ABN Amro, BayernLB, Crédit Agricole, DZ, NatWest and UniCredit this morning went out with initial guidance of the mid-swaps plus 4bp area for the November 2029 euro benchmark Hypothekenpfandbrief, rated triple-A. After around 40 minutes, they reported books above €1bn, excluding joint lead manager interest, and after an hour and 40 minutes, guidance was revised to mid-swaps flat plus or minus 1bp, will price in range, on the back of books above €2.2bn, including €85m in JLM interest. The spread was ultimately set at minus 1bp and the size at €1bn on the back of the same sized book, pre-reconciliation, and the final book was above €2bn.

“They achieved everything they hoped for,” said a syndicate banker at one of the leads. “The issuer invested a couple of days on the roadshow last week, and my impression is that they are feeling that they have been rewarded in having successfully opened their green platform.”

In spite of the broad market volatility and mixed results since the mandate for the green debut was announced last week, he said that moving ahead this week made sense.

“It’s true, it is not the easiest of markets,” said the lead banker, “but at the same time, investors are coming to terms with developments rather quickly. And the return of yield is something they by and large appreciate – we see some investors returning to this market who had been abstaining when this was negative yield-only.

“Relative value is nevertheless the game that you have to play here,” he added, “and at less 1bp there’s something on the table versus comparables, even if probably a basis point less in spread than one or the other investor might have hoped for.”

According to pre-announcement comparables circulated by the leads, DZ April 2029s were quoted at minus 3bp, and the lead banker put fair value at around minus 2.5bp, reflecting the curve extension.

BPCE SFH’s new issue was announced this morning, after DZ’s, with leads CaixaBank, Deutsche, Erste, ING, LBBW, Natixis, NordLB and UniCredit opening books with initial price thoughts of the 8bp area for the euro benchmark February 2029 obligations de financement de l’habitat, rated triple-A. After around 45 minutes, they reported books above €1bn, excluding JLM interest, and after around two hours and 10 minutes, they set the spread at 5bp for an expected size of €1.25bn-€1.5bn on the back of books above €2bn.

In spite of announcing the expected size range, the leads ultimately upsized the trade to €1.75bn as the final order book topped €3.4bn, pre-reconciliation.

“There is great appetite,” said a syndicate banker at one of the leads, “especially if you leave a few basis points on the table – it feels that 2bp-3bp is the minimum necessary right now.”

Bankers at and away from the leads put the new issue premium at around 3bp. According to pre-announcement comparables circulated by the leads, BPCE January 2029s were quoted at plus 1.75bp, mid, and June 2029s at plus 2.25bp.

A banker away from the leads suggested BPCE had been more focused on size rather than spread, hence the “juicier” pick-up than available on DZ Hyp’s €1bn deal, and the lead banker said that had BPCE only sought €1bn it could probably have priced the trade 1bp tighter.

UniCredit Bank AG (HVB) is expected to hit the market tomorrow (Wednesday), with a five year euro benchmark public sector Pfandbrief, having mandated Commerzbank, Danske, Erste, Santander and UniCredit, according to a mandate announcement today.

A syndicate banker said other issuers had been monitoring the market in recent days and could hit the euro market at short notice.

Landesbank Baden-Württemberg (LBBW) is meanwhile planning a three year green mortgage Pfandbrief in US dollars, via HSBC, LBBW, NatWest, RBC, TD and UBS. The Reg S trade will be the issuer’s second green Pfandbrief in dollars, after it in May 2019 sold a $750m three year that was the first benchmark green covered bond in dollars.

Its latest issue comes after Deutsche Pfandbriefbank last Wednesday issued a $750m three year mortgage Pfandbrief at 43bp over SOFR mid-swaps.