Bausparkasse Schwäbisch Hall (BSH) postponed a €500m no-grow 10 year Pfandbrief today (Tuesday), as growing concerns about appetite for the German product at prevailing levels in a fatigued market were realised, compatriot HCOB also finding limited demand, despite yieldier deals selling comfortably.

BSH leads Commerzbank, DZ, ING, LBBW and UniCredit opened books shortly before 09.00 CET, with guidance of the mid-swaps plus 21bp area for the €500m no-grow June 2033 mortgage Pfandbrief, expected rating Aaa. Shortly after 11.00 CET they set the spread at 21bp, without providing a book update, with books due to go subject at 11.45 CET. But at close to 13.15 CET they announced that the issuer had decided to postpone the proposed deal, thanking investors for their interest.

“It’s not the end of the world,” said a banker at one of the leads. “The long and the short of it is, we decided not to proceed with a transaction on the back of what we got during bookbuilding today, which wasn’t enough to do a transaction that would have been understood as a success by all sides – investors, issuers and the banks.

“It’s nothing against the credit – there hasn’t been any negative feedback on the bank or the cover pool,” he added. “There have just been too many investors saying, oh, that’s an interesting trade, it’s not too tight, it’s fine, it’s OK, but not today, thanks. And if there are too many passing on it like that, it’s better to not proceed than force something on the market.”

He noted that SSA supply in the 10 year tenor today had attracted strong demand,

Deals being pulled after bookbuilding has begun remains a rare phenomenon, not least for Pfandbriefe, noted one banker away from the leads.

“I think we haven’t seen that on the covered side for quite a while,” he said, “and, personally, I don’t remember a Pfandbrief having been pulled. It’s a new situation.”

The mandate for BSH’s mortgage Pfandbrief was announced early yesterday (Monday) afternoon, shortly after final terms had been set on a dual-tranche LBBW Pfandbrief including a €500m no-grow public sector tranche that was only modestly oversubscribed, with a €620m book good at re-offer, including €55m of joint lead manager interest, and pricing in the middle of initial guidance, at mid-swaps plus 19bp. A €500m no-grow green mortgage-backed three-and-a-quarter year tranche had meanwhile attracted over €1bn of orders, but this dropped to a final €650m when pricing was tightened from the initial 3bp area guidance to minus 1bp.

The subdued demand for the deal followed on from lacklustre results for some other German deals in recent weeks, particularly for longer dated transactions, although a €500m four-and-a-half year deal for Hamburg Commercial Bank (HCOB) today was also priced without any book updates after the spread was set in the middle of initial guidance, albeit with the deal being completed.

Syndicate bankers said the travails of some German deals was the result of the repricing the covered bond market has been undergoing in light of the end of CBPP3 and broader macroeconomic backdrop, while the record first half supply was also causing fatigue more generally.

“It’s not that the covered bond market is closed or in deep trouble or anything,” said another syndicate banker away from the leads. “But there’s clearly a bit of an adjustment going on and the tighter jurisdictions are suffering – particularly the German segment, because it’s still comparatively tight versus everything else. It may give you a monster spread versus Bunds, but that’s not the only metric.

“It wasn’t just the tenor, even if that’s not the sweet spot – HCOB looked a bit tricky, too. If you are a smaller issuer, many investors may wait until the next trade the next week.”

Market participants have recently flagged, for example, the spread differential between French and German paper as open to question – yesterday Caisse de Refinancement de l’Habitat issued a €1bn nine year covered bond at mid-swaps plus 31bp.

Investors’ attention has meanwhile been caught by rare or higher yielding supply in the asset class, most notably from Italy. Banco BPM launched the third OBG benchmark in this month’s reopening of the jurisdiction, pricing a €750m five year at mid-swaps plus 55bp on the back of books above €1.2bn. Bank of New Zealand was also in the market today, with a €750m five-and-a-half year.

A banker said the post-CBPP3 market is living up to its promise.

“But contrary to some beliefs,” he added, “trades that come from more exotic jurisdictions with a lot of spread are doing the best. The tighter jurisdictions, even with all the quality behind them, are finding it tricky.

“It’s not so much a flight to quality, it’s more a flight to value and where you can maximise your investments.”