A €500m long four year Pfandbrief for Aareal Bank confirmed the weak state of the market today (Tuesday), with the euro benchmark priced in the middle of initial guidance on the back of a book of some €630m, leaving syndicate bankers downbeat on the outlook for the primary market.

Leads BayernLB, Commerzbank, HSBC, LBBW, Natixis and UniCredit announced the deal this morning and opened books at around 9.40 CET with guidance of the mid-swaps plus 8bp area for a February 2027 euro benchmark-sized mortgage Pfandbrief, expected rating Aaa. After around an hour and three-quarters, they reported books above €625m, including €40m of joint lead manager interest, and after a little over an hour and a half, the spread was set at 8bp for a €500m size, with the order book only marginally larger, at above €630m, including €40m of JLM interest, which was also the final book size.

The German deal is the first euro benchmark covered bond since NIBC last Wednesday priced a “solid” €500m no-grow five year inaugural soft bullet that was the only euro benchmark of last week, with volatility having risen and financial markets weakened in the interim on the back of the latest central bank policy fears.

Syndicate bankers said Aareal’s deal offered little cause for optimism.

“I was rather surprised to see how it started, and how it ended,” said a banker away from the leads. “We had plus 8bp down as being on the conservative side, but it took them ages to get something meaningful out in terms of a book update, and they didn’t manage to move the spread even a single basis point.

“It’s no disaster,” he added, “but it’s by no means encouraging.”

According to pre-announcement comparables circulated by the leads, Aareal August 2026s were quoted at minus 2.7bp, bid, and July 2027s at minus 1.7bp, while its most recent issue, a €750m February 2029 printed in April, was quoted at 5.5bp. That seven year was printed at 3bp over mid-swaps, while in January Aareal priced a €750m eight year at minus 1bp.

“It’s just another indication of the state of the market,” said another banker of today’s outcome. “I do hope that we’re going to have a couple of days to digest things and then revisit the case for issuance, because for now, we just don’t seem to be getting anywhere.”

After NIBC’s first soft bullet last week, a mandate for a €500m no-grow long five year debut soft bullet for compatriot Van Lanschot Kempen was announced on Friday, to be launched “in the near future subject to market conditions”, with investor calls scheduled for Friday and yesterday (Monday). ABN Amro, Credit Suisse, LBBW, Natixis and Rabobank have the Dutch mandate.

“I could imagine that following what we saw today, they will most likely be even less inclined to go tomorrow (Wednesday),” said another syndicate banker. “Rather keep your gunpowder dry, unless, of course, you are forced to issue.”

Following confirmation from the European Central Bank last Thursday that net new purchases under the Asset Purchase Programme (APP) will end on 1 July, a potential month-end cut to the standard Eurosystem order for CBPP3-eligible new issues from 30% is in even greater focus. Public holidays in parts of Europe on Thursday already reduced the remaining window for issuers to be sure of a 30% order, and next week will be their last guaranteed opportunity.

“We’ll be keen to watch the first deal that settles in July and see what the ECB’s bid share is,” said a covered bond analyst, “because that could also drive spreads wider. My take is that they will go down to 10%-15%, although given all the redemptions they have to reinvest, you can make a case for it not being lowered too much.

“Either way, it will definitely make issuers a bit more nervous and could mean they have to pay even higher new issue premiums.”

Austria’s Bausparkasse Wüstenrot meanwhile priced a €250m no-grow three year sub-benchmark at 12bp today, and Finland’s POP Mortgage Bank remains in the pipeline with a five year sub-benchmark after marketing last week.