DZ Hyp successfully extended the German Pfandbrief curve out to seven years for the first time in 2025 with a twice-subscribed €1bn deal today (Wednesday), but suffered the greatest book attrition of any euro benchmark covered bond yet this year, suggesting investors’ pricing limits are being tested.

Following a mandate announcement yesterday (Tuesday), leads CIBC, Danske, DZ, Erste, Natixis and NordLB opened books with initial guidance of the mid-swaps plus 44bp area for DZ Hyp’s euro benchmark-sized February 2032 mortgage Pfandbrief, expected ratings Aaa/AAA (Moody’s/S&P). After a little over two hours, they set the spread at 37bp and the size at €1bn on the back of a €3.5bn book, pre-reconciliation and including €210m of joint lead manager interest.

With the final book being €2bn, including €190m of JLM interest, around €1.5bn or 42% of orders were lost, much greater than experienced by issuers so far in January.

“So there is some price sensitivity,” said a syndicate banker at one of the leads, “and we actually discovered the key price sensitivity with that move from 44bp to 37bp. We are still satisfied – €2bn is a good size for a €1bn trade and you don’t need an eight or 12 times subscribed book – and have tested the water for Pfandbriefe in seven years.

“That is a good thing, in allowing subsequent Pfandbrief mandates to know where the limits are when it comes to pricing.”

According to pre-announcement comparables circulated by the leads, DZ Hyp April 2031 public sector Pfandbriefe were quoted at 38bp, mid, and May 2032 mortgage Pfandbriefe at 39bp. Of this year’s German supply, Commerzbank December 2029s and LBBW February 2030s were both seen at 32bp, after having been re-offered at 36bp and 40bp, respectively, while Bausparkasse Schwäbisch Hall (part of the DZ group) January 2031s were at 34bp, in from 40bp.

The lead banker said the deal came flat to fair value, but noted that older issues among the comparables even suggested pricing inside fair value.

Responding to a suggestion the starting level of 44bp had been too cheap, he pointed out that the move of 7bp was in line with recent practice and that the book attrition showed that the tightest possible level had been achieved.

Helaba is expected next with a Pfandbrief benchmark of just a year shorter, following the announcement of a mortgage-backed six year deal today. ABN Amro, BBVA, Crédit Agricole, Helaba, TD and UniCredit have the mandate.

Alongside DZ Hyp’s new issue, the leads included LBBW February 2030s at 30bp, mid, and Commerzbank December 2029s at 32bp in pre-announcement comparables circulated this morning.

Germany also provided the first syndicated sub-benchmark covered bond issuance of the year yesterday, in the shape of a €250m no-grow five year public sector Pfandbrief for Landesbank Berlin.

Announced on Monday morning, it was priced at 35bp over mid-swaps on the back of a final book above €730m, including €105m of JLM interest and with 38 accounts participating. The spread was tightened from initial guidance of the 39bp area, with the new issue premium put at 2bp by the leads.

Kreissparkasse Köln is planning to launch its first green mortgage Pfandbrief, a €250m no-grow five year deal, after investor calls tomorrow and Friday. BayernLB, DZ and Helaba have been mandated for the sub-benchmark.

Away from Germany, Slovenská sporiteľňa is expected tomorrow with a €500m no-grow four year covered bond. Commerzbank, Erste, Helaba, LBBW and NordLB have the mandate, which was announced today.

Among a wide variety of comparables circulated by the leads, January 2029 and April 2032 paper from Slovenská sporiteľňa parent Erste Bank was seen at 40bp and 43bp, mid, respectively. Compatriot ČSOB’s July 2029s were quoted at 55bp.