Weaker market conditions deterred embarkation upon any new issue projects this (Monday) morning, although NordLB will later today take stock after having finished an aircraft Pfandbrief roadshow. Münchener Hyp is relishing the demand it received for a debut US dollar deal.

The deal pipeline in the euro market is thin, said syndicate bankers this morning, with little sign of issuers looking to approach the market despite some monitoring issuance conditions.

“A bit of risk-off has come back into the market environment,” said one. “Equities are down, the Bund Future is up and spreads are a bit wider, which all speaks to a flight to quality.”

If covered bond supply hits the market it will do so quickly and at short notice, he suggested.

Italian and Spanish government bonds are under renewed pressure, with 10 year yields above 7% and 6%, respectively, according to RBS analysts. Covered bonds from these jurisdictions have underperformed swaps across the board over the last few days, they added, with Pfandbriefe outperforming swaps by around 5bp, in some cases more.

NordLB, Hannover

NordLB concludes an aircraft Pfandbrief roadshow in Luxembourg today and The Covered Bond Report understands that the issuer and the leads will this evening discuss how to proceed, with feedback from the roadshow having been “very constructive”. (Click here for related coverage.)

Commerzbank, Deutsche Bank, NordLB, RBS and UniCredit have been working with the issuer.

A syndicate official said that away from NordLB he was not aware of any other new issue projects waiting to be executed and that he does not expect much supply. Another said that market conditions do not feel terrible, but that it was evident the rally from the first half of last week has ended.

He suggested this could be the last week for issuers to enter the market before a summer lull kicks in, with accounts eager to close books as early as possible, although another syndicate banker suggested that the market will stay open past a traditional Bastille Day (14 July) cut-off and reopen earlier than usual, too.

“Given the way the market is people will want to use any opportunity,” he said, “although it’s all theoretical and a question of market conditions.”

US and Scandinavian banks start to report second quarter earnings this week, which will limit FIG supply, said another syndicate banker.

Münchener Hypothekenbank nipped into the market on Friday morning to launch an inaugural US dollar covered bond benchmark before US non-farm payrolls were announced, with leads Goldman Sachs and Nomura building an order book on the back of a lead private placement enquiry to size a $500m (Eu401m) three year RegS deal. The deal was priced at 63bp over mid-swaps, the tight end of guidance of the 65bp over area.

Claudia Bärdges-Koch, deputy head of treasury, at Münchener Hypothekenbank, said that the level of demand uncovered by the lead managers came as a positive surprise, and that the deal was a huge success.

“The dollar funding is a good fit for our residual dollar assets,” she said, “providing fantastic follow-up financing, including of some cross-currency swaps, which should be positive from a rating perspective as it takes currency risk out of the cover pool.

“That we were able to tighten guidance to 63bp over shows how well the transaction was received.”

Eldar Mezbur, head of covered bond origination at Goldman Sachs, said that investors appreciated that the trade was about helping Münchener Hypothekenbank satisfy natural dollar funding needs.

“The reason why the deal was a success and why we were able to convert a few private placements into a benchmark was because investors realised that the issuer is not funding for basis swap conversion and trying to benefit from that,” he said. “We started with interest from two large investors and realised that we could build on this and take the deal into the jumbolino bracket.”

Bärdges-Koch said that although the issuer is running down its dollar asset portfolio it is open for further dollar covered bond deals to refinance its existing portfolio.

“There seems to be a high level of demand for US dollar assets from quality issuers, and it’s fantastic that our name is getting such a good response from outside of Germany,” she said.

Included in the accounts that participated in the transaction were investors who were completely new to Münchener Hypothekenbank, according to Bärdges-Koch – a positive “add-on”.

According to Mezbur the level on the dollar deal converts to around 17bp through mid-swaps in euros, in line with secondary market trading levels for Münchener Hypothekenbank in euros.

“The fact that we were able to launch a successful deal at a level where Münchener Hypo would bring a euro trade makes a lot of sense,” he said. “The issuer and investors benefitted.”

[The equivalent euro level included in Friday’s coverage of this deal, provided by a market source, was incorrect and has been removed. Apologies for any confusion.]

Half of the bonds were allocated to US offshore accounts, followed by Switzerland with 13.7%, the Middle East 12%, Scandinavia 11%, Asia 6%, the UK 3.5%, Germany 3%, and Italy 0.8%. Central banks and sovereign wealth funds took 68%, banks 16.7%, asset managers 6.8%, pension funds 6%, and others 2.5%.

Lorenz Altenburg, head of covered bond syndicate at Nomura, flagged the breadth of demand by type of investors as a positive, with central banks and SSA accounts taking less of the transaction than is typically the case for such RegS deals.

“They can often be driven purely by central banks and SSA/sovereign wealth fund accounts reinvesting dollar liquidity,” he said. “A good third of this deal went outside of the classic USD Pfandbrief buyers.”

He said that the deal has been sought after in the secondary market, with the leads having to rapidly close the order books on Friday morning to price the transaction before US non-farm payrolls were announced.