LBBW issued the first German euro benchmark in four weeks today (Monday), a €500m no-grow 3.5 year public Pfandbrief that attracted over €1.6bn of demand to place the German segment on a firmer footing, although bankers said longer dated Pfandbriefe could still prove tricky.

Today’s euro benchmark for Landesbank Baden-Württemberg (LBBW) is the first from Germany since Deutsche Pfandbriefbank (pbb) sold a €500m no-grow long four year on 18 September that was not tightened from its initial mid-swaps plus 27bp guidance, with the level of demand undisclosed. German issuers have since then been hesitant to tap the market, with uncertainty among both investors and syndicate bankers on appropriate pricing levels coming on top of broader volatility in fixed income markets.

“There was definitely a lot of feedback from investors that German Pfandbriefe were not fairly priced versus other core names, with especially French names always cited,” said a syndicate banker at one of LBBW’s leads. “Meanwhile, the main story of the past two weeks has been working out what is a fair new issue concession.

“The starting point has been key, and for stronger names and trades like Belfius, CFF or Caffil, we saw this 10bp back of what was seen as fair value. We spoke to investors in recent weeks about what would be appropriate for a strong German name, and we received encouraging feedback that 10bp over fair value would indeed be seen as fair.”

According to pre-announcement comparables circulated by the leads, LBBW 3.25% November 2026s were at in i-spread of 1bp and 3.25% September 2027s at 6bp, while subsidiary Berlin Hyp 3% May 2026s were at minus 8bp and 3% October 2027s at 2.5bp. With the comparables all having been launched in the past year and hence carrying current coupons, fair value was put at around 5bp.

“LBBW had completed its covered bond funding for the year,” said the lead banker, “so it was not in a rush to issue, but felt that it might make sense to think about pre-funding, not knowing what kind of spreads and supply we will see in January. Hence the limited issue size, with €500m no-grow not being particularly usual for LBBW, also because the issuer could not do more in this maturity.

“The shorter maturity has the benefit,” he added, “that it is one where the issue of relative value versus other jurisdictions is not so relevant as it is for five or seven years, where views are much more divergent. So all the boxes were ticked.”

LBBW then opted for intraday execution in light of geopolitical tensions, in particular the possibility of an imminent Israeli offensive, according to the lead banker, and opted to proceed following a go/no-go call this morning after markets opened on a relatively stable footing.

“The Pfandbrief is a safe haven, but currently it makes sense not to leave anything to chance,” he said. “We also didn’t start as early as usual, but really observed the market to check that it was holding.

“All in all, it was a defensive approach.”

Leads Crédit Agricole, ING, LBBW, Nordea, Scotiabank and UniCredit opened books at around 9.45 CET with guidance of the mid-swaps plus 15bp area for the €500m no-grow April 2027 public sector Pfandbrief, expected rating Aaa. After around an hour and a quarter, the leads reported books above €1bn, excluding joint lead manager interest, and the deal was ultimately priced at 11bp on the back of a final book above €1.6bn, excluding JLM interest, with some €200m of orders coming in once the spread was set.

Bankers away from the trade welcomed its success.

“It’s good news,” said one. “In a volatile environment with lots of question marks, it is one of the few covered bonds that could go as you would have hoped.

“A book around €1.5bn is what you might hope for on a German Pfandbrief from a strong name in a shorter maturity, and it was also good to see the book grew after the final spread was set.”

The lead banker said that bookbuilding started relatively slowly, possibly with investors surprised to see the new issue appearing later in the morning, but then gained momentum, with big orders being placed by larger accounts, including bank treasuries and official institutions.

“The ‘books above €1bn’ update really helped,” he added, “with the number of lines increasing strongly. It seems a lot of investors needed the signal that the deal was working. Maybe this is the uncertainty that many investors have – it looks attractive, but they are not confident about their view.

“Then we were much more sure that we could have a strong tightening – the extent to which we would be able to tighten pricing had been difficult to predict at the start. The issuer could have tightened further, but didn’t want to play games. It wanted to keep the book together, which should help the deal perform, which was another objective.”

LBBW’s 11bp spread compares with a re-offer of 3bp paid by MünchenerHyp on a €500m three year mortgage Pfandbrief on 30 August, on the last German euro benchmark before pbb’s.

In spite of the success of LBBW’s trade, syndicate bankers said it was not clear that further German supply will be unlocked.

“A couple are looking, but they are more focused on five years and it is still hard to find the right pricing there,” said one, “so the runway is not necessarily clear. There are also the geopolitical tensions that could flare up, and some names might require a one-and-a-half day approach.

“Still, it is a good signal that Pfandbriefe are not in completely unknown waters, and if we get a better view on the volatility, LBBW does at least leave a nice reference point.”

The only officially announced deal in the pipeline is a €500m no-grow Banca Popolare di Sondrio five year OBG that was announced today, with IMI-Intesa Sanpaolo and UniCredit mandated as global coordinators and joined as bookrunners by Banca Akros, Erste, LBBW, Natixis and RBI.

The Italian bank’s last benchmark covered bond was a €500m seven year in 2016.