Hamburger Sparkasse (Haspa) is set to launch the first German benchmark in two weeks tomorrow (Wednesday), having mandated a €500m no-grow seven year mortgage Pfandbrief, the outcome of which could indicate how widespread is the impact of commercial real estate concerns.

The last German Pfandbrief benchmark was a €500m 10 year for LBBW at mid-swaps plus 34bp on 7 February, launched as concerns about the US commercial real estate exposure of some German lenders were escalating.

Last week Fitch downgraded Aareal Bank’s long term issuer default rating from BBB+ to BBB, while S&P cut its long term issuer credit rating of Deutsche Pfandbriefbank (pbb) from BBB to BBB-.

DZ analysts today (Tuesday) noted that the z-spread of the iBoxx Euro Germany Covered index has risen a “whopping” 5bp since the end of January, significantly more than the 1.8bp for the overall iBoxx Euro Covered Index.

“Even if the drastic widening of spreads is currently limited to a small number of German issuers, we are nevertheless seeing increased risk aversion among investors towards covered bonds with CRE exposure,” said DZ analyst Thorsten Euler.”

Z-spread of mortgage Pfandbriefe (basis points)

As at: 17:00 19/2/24; Source: Bloomberg, DZ Bank

“We would not be surprised if demand for German Pfandbriefe is generally more selective in the coming weeks and months due to CRE risks,” he added, “as there is no other covered bond country segment in which commercial property financing is so present in the cover pools. Coupled with a possible slight increase in new issue premiums, some pressure on risk premiums in the secondary market could remain or at least will slow down a tightening movement – we expect for the overall covered bond market a slight spread tightening in early summer.”

According to an investor presentation published this month, Haspa’s cover pool is exclusively Germany, with residential cover assets constituting 70% of the pool and commercial real estate 30%.

Announced today, the deal will be led by Commerzbank, Danske, DekaBank, LBBW and UniCredit.

“That’s going to be an interesting one,” said a syndicate banker away from the leads. “It’s a very domestic name and historically they’ve been pricing pretty tight.

“I’ll be keen to see where they start tomorrow and how the book develops, to recalibrate the old pricing parameters.”

Pre-announcement, the issuer’s February 2028s and September 2028s were seen at 20bp and 21bp, mid, respectively, according to the leads. The €500m September 2028 issue was Haspa’s last euro benchmark, launched in May 2023, and is its long-dated benchmark.