Aareal Bank is set to extend last week’s short-dated theme with a €500m no-grow short three year mortgage Pfandbrief tomorrow (Tuesday), as covered bond analysts up their full-year supply forecasts amid the fast start to the second half of the year.

The German lender has mandated Commerzbank, Danske, DZ, LBBW, UBS and UniCredit for the May 2026 benchmark, expected rating Aaa.

According to pre-announcement comparables circulated by the leads, Aareal February 2026s were quoted at mid-swaps minus 2bp, mid, while its August 2026s were at 6bp and February 2027s and October 2027s at 11bp and 12bp, respectively.

The new issue will be the second time Aareal has issued a benchmark of three years or shorter this year, with its €750m February 2026s having been issued in February, at 3bp. Deutsche Pfandbriefbank on Thursday sold a €500m 3.625% long three year (October 2026) mortgage Pfandbrief at 14bp – with a new issue premium of around 10bp – while five out of last week’s six €500m deals were in maturities of four-and-a-half years or shorter.

“It’s the right thing to do, because it’s what works,” said a banker at one of Aareal’s leads. “Last week’s deals also showed, the shorter, the better, and for issuers wanting to tap into as many potential pockets as possible, offering something short to those investors who still have funds available and would like to put that to work is the best they can do.

“Keeping it simple, it’s a question of picking the maturity that is closest to the highest available yield – the magic of the longer dated stuff is gone.”

Indeed, ANZ New Zealand on Wednesday enjoyed the second highest level of oversubscription for a euro benchmark this year, according to LBBW analysts, as its €500m no-grow three year attracted some €3.75bn of demand, allowing for tightening of an unusually high 7bp and a new issue premium put at as low as 3bp by leads ANZ, Barclays, BNP Paribas and UBS. The New Zealand trade came after Crédit Agricole had on Tuesday attracted over €3bn of orders to a three year public sector-backed €500m no-grow deal to price with a new issue premium of 5bp-6bp.

The only transaction of five years or longer was a €500m five-and-a-half year OBG for Iccrea Banca, the higher beta product offering a spread of 68bp and the hence the highest yield of the week, 3.939%, despite coming further along the inverted curve.

After the busiest opening week of H2 since 2018, in terms of number of deals, and with year-to-date euro benchmark supply of some €140bn already approaching the low end of analysts’ full-year 2023 forecasts, covered bond analysts have been raising their issuance forecasts – even if supply in the second half of the year is expected to be low in comparison with the first six months.

Euro benchmark covered bond new issues (m)

Source: LBBW

LBBW analysts, for instance, lifted their full-year target from €165bn to €195bn – close to last year’s record – while Helaba analysts raised their forecast by a more modest €15bn.

“We expect issuance to slow in H2, as many banks have already largely met their funding plans,” they said. “However, we are slightly raising our forecast for the year from €160bn to €175bn, mainly to take into account the remaining maturity volume of around €43bn and the outstanding issuance plans.

“We also do not rule out the possibility of pre-funding in Q4 in anticipation of 2024, should the ECB consider reducing its balance sheet more quickly by selling bonds, as is being increasingly discussed.”