The primary market successfully absorbed a bumper €12.2bn of euro benchmark supply in the opening week of the year, with the return of long-dated deals a highlight, and syndicate bankers are optimistic that the market will remain receptive, albeit with elevated new issue premiums the norm.

Year-to-date supply comprised 11 deals, two of them dual-tranche issues. The activity represents a fast start compared to recent years, with €3.75bn having hit the market in the first week of last year and a further €11bn in the second.

“It seems some issuers would like to get a billion or so done rather quickly,” said a syndicate banker, “and then be more relaxed fort the rest of the year, which may explain why this started right on 2 January. But there’s nothing to be concerned about – unless something nasty happens on the macro side, this should remain a receptive market.

“I believe next week will be active again as everyone will have returned from holidays.”

Headlining the line-up for the coming week after a mandate announcement this (Friday) morning is DZ Hyp, which is due with a €1bn dual-tranche Green Pfandbrief transaction split into €500m no-grow three and short 10 year tranches. Crédit Agricole, Danske, DZ, IMI-Intesa Sanpaolo, NordLB and UniCredit are bookrunners.

Sparkasse Pforzheim Calw has meanwhile been preparing its first euro benchmark, a €500m no-grow four year mortgage Pfandbrief that is expected next week via Erste, JP Morgan and LBBW. The German issuer has been issuing sub-benchmarks since 2025.

Among this week’s highlights were the first 10 year euro benchmarks since September, demonstrating renewed possibilities at the long end, with Berlin Hyp and then BayernLB selling €500m Pfandbriefe, and Arkéa Public Sector SCF issuing a €500m eight year.

“It’s good to see that we’ve finally moved on from three to five years and can now go up to 10 years,” said one syndicate banker. “At the same time, the only two 10 year trades we have seen are €500m deals from the tightest of names, so I’m not sure how much you can read into that. The big question is whether we’ll see other jurisdictions that are usually active at the long end, like the Dutch – I’m sure they’d love to do a 15 year, but I don’t think you necessarily want to go there.

“And three years is still where you get the strongest trade.”

This was reflected in new issue premiums – Berlin Hyp paid around flat to fair value for its €500m three year social tranche, which attracted over €2.3bn of demand, but 6bp-7bp for its 10 year, which had a book above €1bn.

“That’s no surprise, given that the yield curve is inverted,” said another syndicate banker, “with three years yielding some 20bp over 10 years. So starting concessions are ballpark 10bp apart from three years, where you can start with maybe 7bp-8bp and then see where you end up.

“Books are going OK,” he added, “and I think dynamics are reasonable. The question is when is this going to be derailed? Because it seems that market expectations are almost unanimous in the sense that people believe covereds are doing to get wider rather than tighter for the foreseeable future – which, of course, is being counterbalanced with the juicy concessions.”

Another banker pointed out that the wide primary supply is putting pressure on secondaries, but was also confident that issuers can continue to take decent amounts out of the market.

All supply thus far has been from CBPP3-eligible names still able to leverage an unchanged Eurosystem bid, with non-Eurozone jurisdictions yet to test the water and potentially a key variable in whether or not supply this week matches the past few days.

“Santander alone took out €3.5bn,” noted one syndicate banker, “so we’re probably going to need a couple of Canadians to get close to €12bn again.”

Photo: DZ Hyp offices, Hamburg; Copyright: DZ Hyp