Berlin Hyp is set to reopen the euro benchmark market from its summer lull again tomorrow (Wednesday), following the announcement of a €500m no-grow five year social mortgage Pfandbrief that bankers expect to be followed by increasing issuance.

Berlin Hyp’s deal will be the first euro benchmark covered bond since Royal Bank of Canada issued a €1.5bn five year on 18 July. The German issuer reopened the market after seasonal breaks on 25 August 2020, 17 August 2021 and 16 August 2022.

The LBBW-owned bank has mandated Commerzbank, HSBC, LBBW, SG and UniCredit for the €500m no-grow five year social mortgage covered bond.

“We officially declare the summer break over,” said a banker at one of the leads.

Amid this year’s heavy covered bond supply and successful activity in other parts of the FIG market during the traditionally quiet summer period, syndicate bankers had been anticipating a relatively early reopening of euro covered bond supply.

And bankers away from the leads today described the planned deal as a safe option for a reopener.

“I believe that they decided that in order to do something early, it makes sense to derisk the transaction as much as possible,” said one, “so they have gone for something conservative.”

Another agreed, pointing to the choice of maturity and size, among other factors.

“It is a very straightforward structure and I think it will do very well,” said one. “The last pre-summer trades in covered, especially from Germany, were in three to five years and demand was evidently deep there as we saw some good transactions.”

Deutsche Pfandbriefbank (pbb) issued a €500m October 2026 mortgage Pfandbrief on 6 July and Aareal bank a €500m May 2026 mortgage Pfandbrief on 11 July, after BayernLB had on 3 July reopened the German segment with a €500m January 2027 deal.

“I’m not saying that beyond five years isn’t doable – far from it – but it is the longest safe option,” added the syndicate banker. “It also has a social element and is €500m will-not-grow.”

According to pre-announcement comparables circulated by the leads, Berlin Hyp 3.375% March 2028s were quoted at minus 1bp, mid, green 0.01% July 2028s at plus 2.5bp, and 0.625% February 2029s at plus 4.5bp, while LBBW green 3.25% September 2027s were seen at minus 1.5bp.

The first banker away from the leads noted that the green July 2028s were trading relatively wide versus Berlin Hyp’s conventional March 2028s and LBBW’s green September 2027s, and attributed this largely to the 0.01% coupon for the deal that was launched in July 2020, in contrast to the coupons of 3.375% and 3.25%, respectively, for deals issued in March and June this year.

“Because the Berlin Hyp paper is available in 1k denominations, there is retail involvement, and they are looking not at the yield but at the coupon,” he said, “which complicates finding fair value for some of these German deals.”

He suggested averaging out the various comparables put fair value at around plus 1bp, and that the leads could therefore start with guidance of 8bp-9bp over to reflect a starting pick-up of 7bp-8bp.

“We will see how this pans out,” he added.

Bankers said that a successful outcome could see further covered bond mandates announced tomorrow, but the bulk of the reopening wave of supply is not expected until next week.