Hamburger Sparkasse sold a debut public sector Pfandbrief benchmark on Wednesday, a €500m long six year that drew its biggest ever book, adding a third instrument to the savings bank’s capital markets arsenal as its activity grows, according to Felix Zillmann in Haspa’s funding and IR team.

Germany’s largest savings bank, Haspa has been issuing benchmark mortgage Pfandbriefe since 2006, typically one per year, and sold its first senior preferred bond in benchmark format in 2023. The issuer’s entry into benchmark public sector Pfandbrief issuance reflects developments in its business, Zillmann, funding and investor relations at Haspa, told The CBR.

“The reason we haven’t issued before is because it was only a few years ago that we decided to enter public sector finance,” he said. “We had been mainly focused on our mandate to serve private and corporate clients, but clearly public sector financing is becoming more and more important these days.

“The savings banks have the mandate to serve their region and the common good, and providing funding to local authorities is another way in which we can fulfil this mandate.”

Haspa’s public sector loan portfolio has grown to more than €1.6bn from last year to this year, putting it in the position to issue its first benchmark public sector Pfandbrief.

“What’s special is that this is also a regional bond,” adds Zillmann. “The loans in the cover pool are mainly financing local authorities and other entities that are in the city or metropolitan area of Hamburg.”

The savings bank’s last euro benchmark covered bond was a €500m seven year mortgage Pfandbrief in February 2024.

Although market conditions for covered bonds have been benign for most of the year, Haspa had been targeting a window later in the year for its debut.

“The current blackout period and the fact that many banks have already completed their funding plans provided a window of opportunity without too much traffic in the euro FIG segment,” said Zillmann. “This certainly helped to get the attention of investors.”

On Wednesday morning, leads Commerzbank, Crédit Agricole, Danske, DekaBank and DZ opened books with guidance of the mid-swaps plus 35bp area for the €500m no-grow March 2032 öffentlicher Pfandbrief, expected rating Aaa. After around an hour and 10 minutes, they reported books above €1.5bn (including €300m of joint lead manager interest), and after around two hours and five minutes they set the spread at 29bp on the back of books above €2.3bn. The final book was over €2bn, including the €300m of JLM interest and 79 accounts.

The order book is the largest for any Haspa new issue.

“We decided to start with a more defensive approach, at mid-swaps plus 35bp, and this gave us a lot of momentum,” said Zillmann (pictured). “Investors also drew confidence from the first book update of €1.5bn, as the book grew even further, which allowed us to set the final spread at 29bp, corresponding to 1bp of NIP. After we published the final spread, we lost around €300m, and the final book was still around €2bn.

“We were extremely happy with the large interest in Haspa’s inaugural public Pfandbrief,” he added, “and on top of that we had 43% of orders from abroad, whereas savings banks books are usually 70%-80% domestic. What was particularly pleasing was that we had put a lot of IR efforts into the Nordic region – we are, after all, quite close to them, but you regularly have the issue that Pfandbriefe may be considered too expensive by foreign investors – and this time around we had a strong bid from Nordic investors, with 18%.”

While Germany took 57.0% and the Nordics 18.0%, Austria and Switzerland were allocated 10.0%, Luxembourg 7.0%, the UK and Ireland 3.0%, southern Europe 3.0%, and other 2.0%. Banks and financial services took 55.0%, funds 30.0%, government/agency accounts 10.0%, and insurance companies and pension funds 5.0%.

The new issue premium was put at around 1bp by lead bankers.

“The book would have even allowed us to price at 28bp, too,” said Zillmann, “but we are building a long term capital markets profile and also looking for high quality orders, including buy and hold accounts.”

With public Pfandbriefe now established alongside mortgage Pfandbriefe and senior preferred, Haspa expects to come to market with two benchmarks a year henceforth.

“As a savings bank, we usually have a high share of deposits on our balance sheet and are pretty rich on liquidity,” said Zillmann, “so we will look at whether we need the issuance for liquidity or rather for duration management.

“An advantage of public financing,” he added, “is that usually the loans are two or three figure million, so you can gather some size a little bit faster, which should also boost the funding needs.”

Haspa was the first German savings bank to sell a social senior preferred bond and can also issue public Pfandbriefe in social format under its framework. It is also working on a green bond framework, which should be completed this year, allowing Haspa to look at issuing a green bond in the future, according to Zillmann.

“The final piece of the puzzle will be green bonds,” he said, “which also fit well into our overall business model.”