The primary covered bond market began life without CBPP3 today (Tuesday), as Berlin Hyp priced a €750m five year euro deal without any order on behalf of the programme, and alongside HSBC Canada showed the asset class to be resilient to endogenous and exogenous challenges alike.

Unlike a cut in the Eurosystem’s orders from 20% to 10% last week, the absence of a CBPP3 ticket from Berlin Hyp’s book – the first eligible euro benchmark to have been launched with a settlement date in March – was in line with expectations since the European Central Bank gave its latest asset purchase programme update on 2 February, when it flagged the phasing out of primary market purchases ahead of the start of only partial reinvestments of APP maturities in March.

“They were not in today’s BHH,” said a syndicate banker. “We only have that deal to go by so far, but we expect it to hold true going forward.”

While the fate of the primary market after the Eurosystem’s departure has been a topic of much debate in the past months and years, the predictable nature of its end amid an otherwise strong covered bond market – where CBPP3 will continued to be active in the secondary market – has led many market participants to play down its ultimate exit.

“Their presence was already negligible prior to this,” said one, “so the 10% difference shouldn’t rock anyone’s boat – if it would, then there’d have to already be something wrong with the deal.

“Any impact should be purely psychological and as such hard to identify.”

But another banker was more circumspect.

“Let’s not be arrogant,” he said. “The covered bond market is very strong and plenty of private investors are involved, but for some of the smaller, rarer names that don’t appeal to everyone, an ECB order will always be helpful – we saw a couple of deals this year where Eurosystem enabled them to get over the line.

“Such issuers will have to stay slightly more conservative, picking investors’ sweet-spot in terms of maturity, for example, rather than going for something longer or unusual, and those concerned about momentum could start out a little wider.”

Syndicate bankers perceived no direct impact on Berlin Hyp’s five year mortgage Pfandbrief today, although noted that the transaction had perhaps not been priced as tightly as might have been expected.

Leads Citi, Commerzbank, HSBC, LBBW and UBS went out with guidance of the mid-swaps plus 4bp area for the March 2028 euro benchmark, expected rating Aaa. They ultimately priced a €750m issue at plus 1bp on the back of some €1.1bn of orders.

“The comps that were circulated pointed to a pretty aggressive move from 4bp,” said a banker away from the leads, “and I imagine that €750m at 1bp was not exactly the outcome they had in mind.”

Berlin Hyp €750m October 2027s issued in October 2022 were at around minus 4bp, mid, according to those comparables, and he put fair value for the new straight five year at minus 3bp, implying a new issue premium of 4bp after a starting pick-up of 7bp at initial guidance.

“But it was a solid deal,” he added.

Another banker said the Eurosystem’s absence from order books could mark an inflection point for the pricing of the richest Pfandbriefe.

A €1bn five year deal for HSBC Canada was meanwhile around twice subscribed, with bankers citing the 32bp spread available on the five year paper as helping tempt asset managers on top of bank treasuries active in the market, while the maturity attracted central banks and official institutions keen on that part of the curve.

Leads BMO, Commerzbank, CIBC, Danske, HSBC, Natixis, Rabobank, RBC and ScotiaBank tightened pricing from guidance of the 35bp area for the March 2023 euro benchmark, expected ratings Aaa/AAA (Moody’s/Fitch).

Bankers put fair value at around 29bp, with HSBC Canada September 2027s seen at around 28bp mid, while the last five year Canadian benchmark, a €1.75bn deal from Bank of Nova Scotia on 9 January, was around 26bp. HSBC Canada is being acquired by Royal Bank of Canada and the latter’s September 2027s were seen at around 23.5bp, with HSBC Canada paper still trading wide of the country’s top tier names.

“It’s interesting, because it’s basically a covered bond issued by HSBC Canada, but you’ll get your money back from RBC,” said a lead banker, “so it’s basically an RBC proxy. It has good tightening potential that will hopefully leave everyone with a good feeling during the transition process.”

As well as smoothly riding out the Eurosystem’s exit, the primary covered bond market has proven resilient to weakness in credit markets in the past fortnight, said bankers, who expect further issuance to emerge as banks have left blackouts, although the record-breaking pace at the start of the year is not expected to resume.

The only officially announced euro mandate in the pipeline is a sub-benchmark for Bank of Åland (Ålandsbanken). The Finnish issuer is holding investor meetings for a planned three to five year deal via LBBW, Nordea and Swedbank.