Euro benchmark covered bond supply made a relatively strong start to the week today (Monday), with two new issues out and at least two more expected imminently, although a €500m five year social bond for CFF put a €500m four year public sector Pfandbrief for LBBW in the shade.

Compagnie de Financement Foncier leads BBVA, Deutsche, HSBC, Natixis and Rabobank opened books with initial guidance of the mid-swaps plus 46bp area for the €500m no-grow October 2029 social obligations foncières, expected ratings Aaa/AAA/AAA (Moody’s/S&P/Scope). The leads were then able to tighten pricing 5bp to 41bp on the back of a final and peak book of some €1.7bn.

“This went very, very well,” said a syndicate banker at one of the leads. “We saw the new issue premium at 1bp, which in covered bond territory these days is a pretty good result.”

The spread over OATs was 18bp, according to the lead banker.

“The five year maturity appeals to a broad range of investors,” he added, “and it benefited from the €500m will-not-grow size and being a social bond. It was clearly the better of today’s pair of new covered bond issues.”

Landesbank Baden-Württemberg leads DZ, ING, LBBW and SG opened books this morning with guidance of the mid-swaps plus 26bp area for the €500m no-grow October 2028 public sector Pfandbrief, expected rating Aaa. After around two hours and 35 minutes, they set the spread at 22bp on the back of books above €650m, excluding joint lead manager interest.

A syndicate banker at one of the leads said the modest level of demand was unexpected.

“Fair value was seen as 19bp so it was perfectly fair to start at 26bp and no one questioned this,” he said. “On the other hand, it didn’t fly, and it was some time before the first update.”

He suggested that several factors combined to limit demand.

“Firstly, it seems that certain investors may gradually be running into line issues for LBBW – they have done quite a lot already this year and Berlin Hyp has also been active,” said the lead banker. “They are going to be joining forces and some accounts are already doing the maths regarding their exposure to them. Secondly, it is the case that not everyone likes public sector covered bonds, while LBBW as a name has its CRE exposure.

“Thirdly, four years as not as sexy as it used to be when curves were inverted – even if they are not exactly steep now. And finally, it’s Monday – although CFF did not seem to suffer from that.”

However, he said that, bottom line, the re-offer spread of 22bp at which the deal landed was fine for the issuer.

“Onto the next one!”

Münchener Hypothekenbank is expected tomorrow (Tuesday) with a €500m no-grow green mortgage Pfandbrief. Barclays, DekaBank, Deutsche, DZ, Nordea and UBS have the mandate, according to an announcement today.

Pre-announcement comparables circulated by the leads included MünchenerHyp green April 2022s at 22bp, mid, green June 2023s at 23.2bp, and conventional July 2024s at 25.2bp. A DZ Hyp six-and-a-half year public sector Pfandbrief was issued last Tuesday at 31bp.

A banker at one of MünchenerHyp’s leads said plans for the new issue had not been affected by LBBW’s modest outcome given the differences in names, collateral and maturity, and the green status of the Munich bank’s trade.

A three year benchmark from BNP Paribas Home Loan SFH is also expected tomorrow, after a mandate announcement today. BNP Paribas, BMO, Commerzbank, Danske, DZ, KBC, Lloyds, Nordea, Rabobank, RBI, SEB and UniCredit have the mandate.