Deutsche Bank sold a “bold” €800m 15 year mortgage Pfandbrief today (Monday), squeezing its settlement in ahead of a possible cut in CBPP3 orders, which could be clarified by a RLB NÖ-Wien 3.5 year benchmark. PKO, meanwhile, successfully sold a €500m green covered bond.

Deutsche approached the market today after having monitored but ultimately sat out a busy and volatile primary market last week, according to a syndicate banker at one of its leads, with issuers having moved to issue euro benchmarks before an anticipated drop in Eurosystem orders for deals that settle in July.

“With the volatility we saw last week – rates dropping 25bp on Wednesday, Thursday – that took any type of duration off the table,” she added.

However, a stable window allowed the German bank to approach the market today and tap into interest in long dated paper that the banker noted other issuers had previously tapped into via either public benchmarks or private placements. Deutsche’s last Pfandbrief benchmark was a €500m 10 year in January 2020.

“It’s common knowledge that Deutsche has been a very rare issuer throughout the TLTRO times and a very rare issuer in duration,” said the lead banker. “It felt like this offered a nice opportunity to match that duration bid and take advantage of levels that, although wider versus the beginning of the year, could widen further given the expectations of the ECB exiting from primary.”

The bank went out this morning with guidance of the 27bp area for the 15 year mortgage Pfandbrief and after around an hour reported books above €700m, excluding joint lead manager interest. A €800m issue was ultimately priced at 26bp on the back of books above €1bn, excluding JLM interest.

The lead banker put fair value at 15bp-17bp. BayernLB priced a €500m 10 year green Pfandbrief last Monday (20 June) and she suggested a conventional 10 year triple-A Pfandbrief might come at 10bp, with the curve between 10 and 15 years then being worth 5bp-7bp, based on French curves and Helaba secondaries.

“So we had a new issue concession of around 10bp,” said the lead banker, “which is roughly what has been needed in recent trades – some have even had to pay more. There were two camps – some said this looks expensive, some thought it was attractive – but we are still in a transition, repricing phase still, so it is natural to get different opinions.”

Priced at a yield above 2.5%, the paper attracted demand from insurance companies and pension funds, according to the bookrunners, and the lead banker said the deal was sized at €800m, rather than a more standard €750m, to accommodate as much interest as possible from such accounts.

With T+3 settlement, Deutsche’s issue settles on 30 June, and it benefited from a standard 30% Eurosystem ticket ahead of any potential reduction in CBPP3 orders.

“It was a very successful transaction,” said another lead banker. “Even if you took away the CBPP3 order, this would have been a good trade, albeit not necessarily the same size.

“Bottom line: there’s enough real money demand out there for high quality, ultra-long dated transactions. There is some uncertainty how the market will live with a reduction in the purchase programme, but looking at this book, I don’t think we’ll see the end of the world tomorrow (Tuesday).”

The first test of whether the Eurosystem cuts its order – after a reduction from 40% in March/April – could come tomorrow, with Raiffeisenlandesbank Niederösterreich-Wien (RLB NÖ-Wien) having today announced the mandate for a 3.5 year euro benchmark.

A syndicate banker suggested the Austrian could be keen to tap the market ahead of the next deadline for the market, EU Covered Bond Directive implementation on 8 July, with issuers in Austria and elsewhere having moved to issue before new legislation comes into force that could take time to accommodate.

PKO Bank Hipoteczny approached the market today with its three year green covered bond after having announced the mandate last Tuesday and held investor calls.

Following guidance of the 40bp area for the June 2025 Polish covered bond, expected rating Aa1, books surpassed €600m, excluding JLM interest, after around an hour and 20 minutes. Guidance was revised to 37bp+/-1bp and the size set at €500m on the back of books above €775m, and the deal was ultimately priced at 36bp on the back of a final €850m book, excluding JLM interest.

“Overall, it really was a success,” said a lead banker, “also given the market environment we’ve seen over the last couple of weeks.”

He said the book included more investors than some recent non-Eurozone issues, with around 50 involved rather than the 30-40 of the others. A €500m PKO covered bond matured on Friday and accounts rolling over their investment into the new issue supported demand, he added.

“The ‘4’ handle clearly helped,” said the lead banker. “Starting with 40bp for a three year, it was very appealing to the investors.”

He said calculating fair value was not straightforward given the lack of comparables, but noted that PKO August 2024s were quoted at 20bp or slightly wider, and put the new issue premium at around 12bp-13bp.