A €250m five year mortgage Pfandbrief from Sparkasse Hannover got February settlements off to a strong start today (Monday), attracting a peak €750m of demand to tighten 4bp, while the Eurosystem maintained its 20% order despite concerns of a potential early reduction in its bid.

The possibility of CBPP3 orders being reduced from 20% to around 10% was a contributing factor in January’s bumper issuance, with issuers having been to avoid risking the fallout from any cut, and, following a mandate announcement on Friday, Sparkasse Hannover was the only deal officially mandated for expected launch this week.

Leads BayernLB, DekaBank and Erste opened books with guidance of the mid-swaps plus 12bp area for the €250m no-grow February 2023 mortgage Pfandbrief, expected rating AAA (Fitch), which settles on 7 February. After a little over an hour, they reported books above €600m, including €65m of joint lead manager interest, and after around an hour and 40 minutes, they revised guidance to 9bp+/-1bp, will price in range, on the back of books above €670m, including €75m of JLM interest. The final terms were after around two hours set at 8bp for the €250m size on the back of books above €750m, and the final order book was above €675m.

A lead banker said that Sparkasse Hannover could be relaxed about whether or not the Eurosystem order would change, and ultimately the deal was three times oversubscribed at peak.

“The sub-benchmark size means there isn’t that much that needs to be filled in the order book,” he said. “Blackout periods and other factors such as the ECB and upcoming central bank meetings also meant we knew there would not be much competing supply.

“And with it being zero risk weighted for the savings banks association there is a natural demand for these kinds of issuances – it wasn’t purely savings banks or Landesbanks, as we had a lot of institutional orders as well, but the driver was obviously the domestic accounts.”

The Eurosystem meanwhile maintained its 20% ticket.

“So that has changed so far,” said the lead banker. “We hadn’t expected it to. We expect the 20% order to remain in February and that in maybe March the order will be reduced, to 10%, for instance.”

German accounts were allocated 77%, Austria and Switzerland 10%, Denmark 7%, and southern Europe 6%. Banks took 74%, asset managers 15%, central banks 7%, insurance companies and pension funds 1%, and others 3%.

The leads saw fair value at around mid-swaps plus 5.5bp, putting the new issue premium at around 2.5bp.

A syndicate banker away from the leads said that it marked an encouraging start to the week, particularly after heavy supply so far this year.

“It’s interesting to see how deals are going because of the sheer volume of what has been issued in January,” he said.

With euro benchmark supply of almost €40bn, and higher including sub-benchmarks, January issuance is the second highest ever.

ING: January 2023 is one of the historically highest January months of covered supply

However, even with the Eurosystem order apparently maintained for February, and mandates for benchmark and sub-benchmark issuance this week in hand, market participants expect the pace of supply to moderate.

“We already have blackout periods contributing to limited supply and the major central banks happenings coming up,” said one. “When issuers come out of blackouts and there is more clarity on the ECB and Fed paths, we could see activity pick up.

“But after what we saw in January, I don’t expect things to continue to be so busy – issuers may also look at the senior market, where conditions are good.”

He noted how a €500m four year green senior preferred issue for Deutsche Pfandbriefbank (pbb) today was almost three times oversubscribed, while a €500m six year mortgage Pfandbrief it sold on 12 January had been barely subscribed.

And Maureen Schuller, head of financials sector strategy at ING, said she expects volumes to be more moderate across 2023, even if year-to-date supply is already some €12bn ahead of that of the record-breaking 2022. Among factors she cited were TLTROs giving banks reason to front-load their covered bond issuance, and 2023 CBPP3 reinvestments being weighted towards January and February.