BayernLB got second half euro covered bond issuance off to a positive start today (Monday) with a €500m no-grow long three year Pfandbrief that enjoyed a doubling of demand upon final pricing of 2bp over, in the first German benchmark since Bausparkasse Schwäbisch Hall (BSH) postponed a deal.

BSH postponed a €500m no-grow Pfandbrief on 20 June, with compatriot HCOB on the same day encountering similarly muted demand for a €500m four-and-a-half year issue it nevertheless completed. This had prompted questions over appetite for German paper tight on absolute and relative value bases, against a broader backdrop of fatigue in the primary market for covered bonds – even if higher beta names were subsequently able to successfully access the market.

Following a mandate announcement on Friday, leads BayernLB, Erste, ING, Natixis and UniCredit this morning opened books with guidance of the mid-swaps plus 5bp area for the €500m no-grow January 2027 mortgage Pfandbrief, expected rating Aaa. After around one hour, they reported books above €700m, including €40m of joint lead manager interest. After close to an hour and 40 minutes, they set the spread at 2bp on the back of books above €1bn, excluding JLM interest. The book then doubled, with a final size of €2.038bn, including €50m of JLM interest, reported.

Syndicate bankers said that the outcome was encouraging for Germany and the tighter end of the asset class, even if the end result could not be described as a blow-out and was arrived at somewhat circuitously.

“It’s very good to see Bayerische Landesbank with a consensual start and printing at 2bp,” said one. “Obviously they got a massive bump in the order book at the end, but it’s put a very useful reference in the primary market where a best in class Pfandbrief comes.

“I’m sure they may now feel like the left a little bit on the table, but it’s the kind of trade the market needs to see in covered bonds to be happier. It’s quite encouraging to see that you can eventually get that level of demand despite the time of the year and having seen how the market has been.”

The doubling of the order book upon final pricing was seen as highlighting primary market dynamics and the change from the issuers’ market enjoyed in recent years.

“It took them some time to get over the €500m line and they said it was €700m and then grew to €1bn,” said another banker away from the leads, “and then it exploded. This is part of the new equilibrium between issuers and investors, where investors basically sit back and wait for terms to pan out and then decide whether to play or not – in the old days, it was the other way around.

“It doesn’t make our job any easier, but it’s interesting.”

According to pre-announcement comparables circulated by the leads, BayernLB January 2026s and July 2027s were at minus 4bp and minus 2bp, mid, respectively, while its green October 2027s were at minus 5bp, and the banker saw fair value at around minus 3bp, implying a new issue premium of 5bp from a starting pick-up of 8bp.

Two weeks ago, on 19 June, LBBW priced a €500m no-grow September 2027 green mortgage Pfandbrief at mid-swaps minus 1bp, with its book falling from above €1bn to around €650m as pricing was tightened from initial 3bp area guidance, leaving a new issue premium of around 3bp.

“They choked that deal by tightening the last basis point,” said a banker today. “On BayernLB, investors deemed a 5bp pick-up attractive, but probably wanted to be 100% sure that they would get the 5bp before joining.”

Banks were allocated 56% of the paper, asset managers and fund managers 32%, central banks and official institutions 7%, and insurance companies and pension funds 5%. Germany took 62%, the Nordics 8%, France 7%, southern Europe 6%, Austria and Switzerland 6%, the Benelux 6%, the UK and Ireland 3%, and others 2%.

After BayernLB today, Crédit Agricole Public Sector SCF is also targeting the short end, with a €500m no-grow three year transaction expected tomorrow (Tuesday) after a mandate announcement today. The issuance of obligations foncières will be led by Crédit Agricole, Deutsche, NatWest, Swedbank and UniCredit.

The issuer’s last euro benchmark was a €500m 10 year in November 2021, while Crédit Agricole Home Loan SFH issued a €1.25bn 10 year on 30 May. According to pre-announcement comparables circulated by the leads, Crédit Agricole Public Sector SCF October 2025s and October 2026s were at 2.5bp and 8.5bp, respectively, while a €1bn A Crédit Agricole Home Loan SFH September 2026 issue sold in February was at 1bp.

A lead banker put fair value based on the issuer’s own curve at around 8bp, and at around 6bp-7bp based on the Home Loan SFH curve and adding a premium to take into account the different issuer/collateral comparable with the differential between Santander mortgage and ECA cédulas. He added that BayernLB’s trade today as well as other supply tomorrow would play into investors’ thoughts in today’s market, even if of a different nature.

Iccrea Banca is set to issue its second benchmark covered bond, a five-and-a-half year (January 2029) issue with an expected size of €500m mandated to Barclays, LBBW, Natixis, NordLB and UniCredit. The bank’s new OBG benchmark comes after a €500m seven year debut in September 2021.

Among pre-announcement comparables circulated by the leads, Banco BPM and Intesa five year paper issued in June was quoted at 55bp and 49bp, respectively.