Five weeks after a sterling roadshow Deutsche Pfandbriefbank today (Tuesday) launched a reverse inquiry-based £250m (Eu312m)  seven year issue inside UK covered bond levels and with a rejigged lead manager line-up, leaving at least one banker “scratching his head”.

Deutsche Pfandbriefbank (pbb) went on an exploratory sterling covered bond roadshow in early October with Barclays and UBS, with syndicate bankers at the time expressing scepticism that a deal would be feasible and indeed the issuer did not proceed with any transaction. A banker at one of the two banks involved in the roadshow said at the time that the basis swap was disadvantageous for a sterling move by the issuer.

However, yesterday (Monday) pbb resurfaced in sterling with a new pair of lead managers, Goldman Sachs and Nomura, who are understood to have collected indications of interest on the basis of initial price thoughts of the 90bp over Gilts area for a seven year mortgage Pfandbrief.

Order books were opened this morning, with guidance set at this level. A lead syndicate banker said that the deal was based on reverse inquiry and that the issuer has sterling assets to fund, with “some flexibility on the level”.

At the time of pbb’s roadshow a debt investor relations official at the German bank told The Covered Bond Report that sterling is an important currency for pbb as it also does business in the UK and that issuing directly in sterling could be more efficient than swapping euro proceeds.

A syndicate banker away from the leads on today’s deal contrasted pbb’s issue with another sterling FIG offering in the market today, a seven year senior unsecured issue for Nordea Bank. This had gone well, he said, with more than £750m of orders placed and the leads able to tighten guidance from the 125bp over Gilts area to 120bp over. Nordea’s deal, coming with a double-A rating, could appeal more, he suggested.

“For a name like pbb, if you try to do a deal with a minimal concession to euros it’s not enough probably,” he said. “It doesn’t look as good as Nordea, but we’ll see.”

He put the euro equivalent level on pbb’s deal at around 40bp over mid-swaps, around 5bp wide of where he said a new seven year deal would come in euros.

Another syndicate official was puzzled by pbb’s deal, saying that its emergence weeks after a roadshow with a different lead manager line-up was unusual, and that it did not make sense from a pricing perspective.

“It’s one of those very occasional deals that gets you scratching your head,” he said, noting that the deal was coming through levels for UK covered bonds issued by the likes of Barclays Bank or Coventry Building Society despite being lower rated but still wide – 10bp-12bp in his view – of where pbb could fund itself in euros.

The deal was also coming inside levels for Yorkshire Building Society covered bonds, the only non-triple-A rated UK covered bonds, he added, putting YBS 2018s at 118bp/112bp over.

“I don’t know which UK accounts would buy it,” he said. “It seems very odd.”

He flagged the possibility of there being “captive demand”.

Pbb’s mortgage Pfandbriefe are rated Aa1, on review for downgrade, by Moody’s and AA+, on stable outlook, by Standard & Poor’s.

The introduction of a Funding for Lending Scheme (FLS) this summer by the Bank of England and HM Treasury has lowered the incentive for UK financial institutions to tap the debt capital markets, but the syndicate official suggested that the lack of domestic supply would not alter UK accounts’ relative value expectations to the extent that the pricing on pbb’s deal would make sense from this perspective.

RBS analysts said that after a strong performance since the beginning of the year most UK covered bonds trade between 100bp and 120bp over Gilts, although UK sterling covered bond spreads are still wide versus the sovereign.

“This shows that Deutsche Pfandbriefbank’s price guidance of UKT+90bp put the bonds into new sterling territory,” they said. “Only Lloyds’ short dated Nov 2016 bond trades tighter.

“Whilst the deal is relatively small with just £250m and will probably be not representative for the entire sterling market, other continental European issuers will closely watch Deutsche Pfandbriefbank’s performance.”

Pbb’s deal is the first public sterling benchmark covered bond from a continental European issuer this year, according to RBS analysts, with 90% of £12bn supply year-to-date coming from UK issuers and the balance launched by Australian banks.

Supply has tended to be split between short dated floaters and long term fixed rate issuance, they added, with pbb’s deal the first to target the six to eight year part of the curve.

According to UBS sales and trading, Compagnie de Financement Foncier (CFF) recently sold a triple-tranche long dated sterling issue, which the bank said was the first large sterling transaction from continental Europe and CFF’s first sterling deal since 2007.

“This latest development confirms that certain investor types continue to search for investment opportunities at the long end in GBP covered and are willing to diversify from the UK (and Australian) market,” said UBS.