Berlin Hyp was able to price its biggest green bond yet on Tuesday, a €1bn three year mortgage Pfandbrief that attracted over €5.8bn of demand, as it once again led the reopening of the euro covered bond market after the summer break and reinforced its ESG issuance strategy.

The new issue – which hit the market ahead of a SR-Boligkreditt euro benchmark covered bond priced the same day – was the first such supply in three weeks, NordLB having sold a €500m 3.25 year deal on 25 July. Berlin Hyp’s latest issue makes it four years in a row that the German bank has reopened the market with the first euro benchmark of August.

“If you look at the last years, you will see that we love August as an issuance month,” said Bodo Winkler-Viti, head of funding and investor relations at Berlin Hyp. “Since 2019 we have come early to market and all the deals have gone very well. Our past experience has been that investors are already back and you have the market a little bit to yourself.

“And especially after what we witnessed in June,” he added, “it felt as if investors had reached a point where they were really tired of all the new issues, as some deals only just crossed the line and spreads widened.”

Many issuers had been keen to approach the market ahead of anticipated cuts to Eurosystem CBPP3 orders and the deadline for implementation of the EU Covered Bond Directive. Supply then eased in July, and a bout of successful supply ending with NordLB’s issue followed.

“We thought it would be good for the market to have a proper summer break and the possibility to digest the heavy supply of the first half,” said Winkler-Viti, “and then approach the market later, when the situation would probably be more relaxed.”

Its new issue was also timed shortly ahead of the maturity of a €1bn Pfandbrief on 29 August. At the time of launch in 2019, that three year deal broke new ground with a yield of minus 0.588%, below the ECB deposit rate and in contrast to the 1.359% offered on Tuesday’s issue.

“Three years is not such a long time,” said Winkler-Viti, “but back then nobody was discussing returning to a normal interest rate environment where yields are positive and not negative – at that time the question was whether they would get even more negative.”

Berlin Hyp was meanwhile keen to be first-mover ahead of anticipated supply from other issuers, which ultimately materialised through the week.

“We knew that one or the other issuer still has some needs and would approach the market sooner or later to get a deal done,” said Winkler-Viti, “and given that conditions can change quickly in the current environment, we were convinced that the majority of them would use these first weeks after the summer to come to the market.”

Berlin Hyp’s issue was launched on Tuesday morning after a mandate announcement on Monday, and leads Commerzbank, Crédit Agricole, DZ, LBBW and UBS were able to build a book of over €5.8bn, including over 180 accounts, in around one hour and 20 minutes, and tighten pricing from initial guidance of the 1bp over mid-swaps area to minus 4bp, allowing for a €1bn size.

“By adopting a one-and-a-half day approach, we were able to get some feedback from investors,” said Winkler-Viti, “and we were already quite sure that our idea would tick a lot of boxes – a three year green covered bond in decent size. Relative value versus Bunds, KfW and German Länder in these short maturities is much more positive than in longer maturities, and there is also a lack of triple-A product in the market.

“So we were expecting good demand for the bond; that it would be so much, we did not expect. It was already overwhelming for us to see the demand for our 10 year inaugural social Pfandbrief back in May when we received an order book of €3bn, but this one is almost double the size.”

The order book is the biggest ever achieved by Berlin Hyp and the largest of any single-tranche euro benchmark covered bond since a BPCE SFH €1.25bn 10 year green trade in May 2020, which attracted some €6.4bn of demand.

The new green bond is Berlin Hyp’s sixth syndicated issue of the year, with all but one having been in ESG formats, four green and one social.

“If it were down to me, we would only issue such bonds,” said Winkler-Viti, “but it is, of course, about the lending the bank does. We are nevertheless making really good progress in growing our sustainable lending portfolios, both the green and the social, enabling us to do more and more use of proceeds funding.”