Deutsche Kreditbank sold its biggest covered bond since 2006 and the longest-dated benchmark of 2026 yesterday (Tuesday), a €1bn 15 year Pfandbrief that generated a bumper €4.4bn book flat to fair value, vindicating the bank’s issuance strategy, according to funding officer Clemens Lukitsch.

The start to the year has been characterised by buoyant long-dated issuance, with record-breaking 10 year supply in the first week of the month followed up by two 12 year trades. After also considering the 12 year tenor, Deutsche Kreditbank (DKB) opted for the 15 year maturity, thereby extending further supply.

“This demand has been a continuation of what we saw at the end of last year,” Lukitsch told The CBR, “with a lot of interest in long maturity private placements. We had specific feedback from investors to this effect: one large asset manager that doesn’t normally buy covereds but only focuses on SSAs, for example, said that this particular issue would prove interesting for them value-wise, so they decided to participate.

“We are happy to be in a position where we are able to fulfil such needs in this maturity segment with large issues, thanks to our asset structure and the quality of our cover pool.”

DKB had been eyeing the end of January for a first benchmark of the year and found conditions to be benign this week.

“The market was in a very positive mood in the first two weeks,” said Lukitsch, “and then there was a little bit of headline-induced volatility, but that dissolved quickly. We had been concerned that we might have missed the window, but it was clear that there was still a lot of investor appetite in the market and so we decided to proceed.”

Following a mandate announcement on Monday morning, yesterday morning leads ABN Amro, BayernLB, Crédit Agricole, NordLB, TD and UBS opened books with guidance of the mid-swaps plus 50bp area for a euro benchmark-sized February 2041 public sector Pfandbrief, expected rating Aaa. After around 55 minutes, the leads reported books above €2.6bn, excluding joint lead manager interest, and after around an hour and a quarter, they set the spread at 42bp and the size at €1bn on the back of books above €3.4bn, including €237m of JLM interest. The final book was above €4.4bn, with 128 accounts.

“I believe it’s by far our biggest book,” said Lukitsch. “And we were surprised how quickly it grew: it was already past €2bn in not even 30 minutes.”

The one-and-a-half day process helped, with more than 90 investors giving feedback ahead of launch, many giving encouraging indications of interest, and some ultimately participating despite having said they would not.

Relatively elevated yields at the long end have been cited as driving long end demand in recent months, and Anna Hawelka, funding and investor relations, DKB, said the 3.5% coupon proved attractive to insurance companies in particular, contributing to the initial momentum.

“It drew a lot of attention from southern Europe,” added Lukitsch, “from Italian, Portuguese and Spanish accounts that may have felt Germany was otherwise too tight a space for them.

“The book was very diversified and the number of investors was very high compared to our typical transactions.”

Germany was allocated 62%, southern Europe 6%, the UK and Ireland 6%, France 6%, the Benelux 5%, the Nordics 5%, Austria and Switzerland 4%, Asia 4%, and others 2%. Asset managers and fund managers took 39%, banks 28%, insurance companies and pension funds 23%, and central banks and official institutions 10%.

The re-offer spread of 42bp over mid-swaps was seen as flat to fair value and at the tight end of what DKB had been hoping for.

“We considered starting with IPTs somewhere between 48bp and 50bp, anticipating tightening of probably 6bp, but we wanted to collect €1bn and to be sure that we would have the book to do so, and therefore started with the 50bp area,” said Lukitsch. “After we did so, we had such a large oversubscription with good quality accounts that we realised we had the opportunity to land at 42bp.

“It was the right decision, as there was no attrition – almost all the limits were at re-offer or changed to re-offer – and there was even growth in the book after we fixed the spread at 42bp. We are now seeing good performance in the secondary market, so the strategy was good for both sides, for investors and for the issuer.”

The €1bn issue puts DKB in a comfortable position vis-à-vis its funding target for the year of around €2.5bn, and Lukitsch said the issuer may opt for larger sizes than its historical €500m standard again.

“This represents a slightly adjusted strategy for the capital markets funding, because in the past we used ‘will-not-grow’ for almost all transactions,” he said. “But as the bank grows, the balance sheet grows, and the share of capital markets funding increases, so maybe we will consider this more often, taking more off the table if the market allows it.”