ApoBank sold a Eu500m seven year Pfandbrief at mid-swaps flat today (Monday) and bankers said the level represented a minimal premium and brought the issuer’s pricing into line with more established German names. Conditions are seen remaining conducive for issuance going into March.

Deutsche Apotheker- und Ärztebank (apoBank) in November last year sold its first benchmark since 2008, a Eu500m February 2021 issue, with today’s issue being only its second benchmark after the long absence from the market.

After holding investor calls and meetings over the last two weeks, apoBank announced a mandate for a Eu500m no-grow seven year mortgage Pfandbrief issue on Friday.

Leads Commerzbank, DZ, NordLB and UniCredit then launched the deal this morning with guidance of the 2bp over mid-swaps area, before revising guidance to 1bp, plus or minus 1bp, will price within range, on the back of Eu750m of orders. The spread was then fixed at flat, with the book closing “well above” Eu800m.

“This is a good trade,” said a syndicate official away from the leads. “Judging by the size of the book, it looks as though it would have worked also without a bid from the CBPP3.

“They did a lot of investor work, and it has paid off.”

Syndicate officials noted that the deal had been priced roughly in line with recent triple-A rated Pfandbrief supply from more established issuers, following a Eu1bn seven year for UniCredit that was priced at plus 1bp last Tuesday, a Eu500m long six year for DG Hyp priced at minus 2bp on 18 February, and Eu500m seven year issues for Berlin Hyp and Deutsche Hypo on 15 February that were priced at minus 1bp and plus 1bp, respectively.

“It is a very good second approach, showing progress from their last deal and more or less coming in line with the better-known German names,” said a syndicate official away from the leads.

Syndicate officials had noted that apoBank’s February 2021 issue was in November priced 2bp-3bp wider than a preceding wave of five and six year German Pfandbriefe between the end of September and mid-October, in spite of also being rated triple-A. They had said this was appropriate, given that the Pfandbrief was in effect an inaugural issue.

Syndicate officials said the most appropriate comparables for the new issue are the recent 2023 triple-A Pfandbriefe, which were seen at minus 4bp-3bp, mid, but added that apoBank’s February 2021 were quoted at minus 2bp, implying that the new issue offered no premium versus the issuer’s secondary curve.

“They are building their reputation in the market and it looks as though they have succeeded in getting an aggressive price versus their secondary, so I’m sure they’ll be pleased with that,” said one.

Syndicate officials said they expect a steady pace of covered bond issuance to continue this week, noting that some issuers were exiting blackout periods. Some said that a UK issuer and a Spanish issuer are among the banks eyeing the market ahead of potential deals.

Bankers noted that the senior unsecured market was open, with Toronto-Dominion in the market with a euro-denominated issue today, but said they expect many issuers to prefer covered bonds given the lower execution risk they offer.

“I’d expect at least two or three more issuers to come to the market this week,” said one. “With markets as they are, I think conditions favour the safe haven product of covered bonds.”

ApoBank’s deal took euro benchmark covered bond supply in February to Eu22.75bn, and Eu45bn year-to-date – making the start of this year the busiest since 2011. Analysts noted that this compares with around Eu31bn of redemptions in the first two months of the year, implying around Eu14bn of net supply. They added that redemptions will next month total around Eu16bn.

“Looking forward, it is unlikely that the factors that support the market will wane, providing a bright outlook for new issuance of covered bonds,” said Joost Beaumont, senior fixed income strategist at ABN Amro.

A syndicate official agreed.

“It’s been a stop-and-start month, with some difficult periods, but mostly conducive conditions for covered bonds,” he said. “Barring anything dramatic, I’d expect more of the same in March.”