Deutsche Hypothekenbank achieved what is thought to be the tightest level for euro benchmark covered bond supply this year via a Eu250m tap this (Wednesday) morning, with demand three times the size at which the increase was capped.

Deutsche Hypothekenbank’s increase is the first benchmark covered bond supply since ABN Amro Bank sold a Eu1.5bn seven year mortgage backed issue last Tuesday (24 July). Summer holidays have prompted the slowdown in market activity despite what syndicate bankers said were conducive conditions for opportunistic benchmark supply from quality jurisdictions and quality issuers as supply and demand remain imbalanced.

“I don’t know of a proper benchmark, but the market could absorb it well,” said a banker. “Enough investors are around and there hasn’t been any supply for a while.

“Things will pick up again at the earliest next week and at the latest the week after next.”

Peripheral government bond markets rallied after European Central Bank president Mario Draghi on Thursday made a “whatever it takes” comment about the central bank’s response to the euro-zone crisis, and close attention will be paid to a post-Governing Council press conference tomorrow (Thursday) for any further information on what this may entail.

A syndicate official on Deutsche Hypo’s tap said that the transaction was launched in response to some reverse enquiry and continued demand for high quality paper as supply lags, and that markets were fairly stable today.

Barclays, BayernLB, Commerzbank, Deutsche Bank and NordLB will price the Eu250m increase of a June 2017 Deutsche Hypo mortgage Pfandbrief at 4bp over mid-swaps, in line with guidance, on the back of some Eu750m of orders, according to the lead syndicate banker.

The tap was capped at Eu250m from the outset, with the order books only open for 30 minutes, he said.

“It was a very good tap, with great momentum,” he said.

A re-offer spread of 4bp over is thought to represent the tightest level this year for euro benchmark covered bond supply, with HSBC Trinkaus analysts reporting that average market value weighted asset swap spreads for German Pfandbriefe have fallen from 39bp at the beginning of the year to 4bp, with significantly tighter levels not having been reached since September 2008.

The next tightest euro benchmark covered bond was a Eu500m six year for Landesbank Baden-Württemberg that was priced at 7bp over mid-swaps on 24 May, with several other Pfandbriefe also pricing in the single digits.

Deutsche Hypo’s tap is of a Eu500m five year issue first launched in the middle of June at 9bp over, with a lead syndicate official saying the increase was priced roughly flat to the secondary market curve. The investor take-up of the increase was similar to that of the original issue in terms of geography and type, he added.

Meanwhile, National Australia Bank yesterday (Tuesday) became the first Australian bank to sell a euro senior unsecured transaction, a Eu1bn 10 year deal that was priced at 105bp over mid-swaps by Barclays, Deutsche Bank and NAB.

A syndicate official away from the leads said the deal came with a new issue premium of only 5bp and “confirmed that investors are able to take investment decisions even during the holiday season and while athletes in London compete for Olympic glory”.