DekaBank opened order books on Wednesday for a €250m July 2026 Oeffentlicher Pfandbrief that was rated Aaa by Moody's with initial guidance of 3bp over mid-swaps, later revised to mid-swaps plus 1bp, plus or minus 1bp.
The deal was priced flat to mid-swaps with a concession of 1.5bp and reoffer demand of €650m through joint leads Dekabank, DZ Bank and Erste Group.
Even though the transaction was 2.5 times covered, there was some spread sensitivity, with €100m of orders falling out of the book when pricing was finalised.
A banker on the deal said the offering presented a “good opportunity to enter the summer on a high note” despite the more limited appeal of sub-benchmark public sector transactions.
He described the issuer as a “sleeping giant” reflecting its diminutive issuance volumes relative to its size.
DekaBank has a 40% market share of the German savings bank sector and total assets of €87.7bn as of December 2020. The issuer’s limited funding needs possibly reflected that its savings bank network collects ample excess liquidity.
Swissies stay busy
The transaction was priced at the same time as MuHyp increased the size of its Swiss franc bonds due 2041 by Sfr80m via sole lead Credit Suisse.
Unlike many issuers MuHyp has the flexibility to respond quickly with a tap issue if the spread works according the lead manager.
He said that some Swiss accounts had been looking for 20 year paper. They were unable to buy a shorter duration and were compelled to invest before summer. As such, this deal was “more less their last chance to buy duration before summer”, he said.
Buying government bonds was also out of the question given negative yields.
The increase was, extraordinarily, priced 2bp inside Swiss Pfandbriefbank’s earlier 20 year, at 12bp through mid-swaps, a highly unusual feat given that Swiss Pfandbriefbank is the benchmark that alternate issuers usually offer a pick up to.
The Swiss franc tap was issued on the back of reverse enquiry identified in Swiss Pfandriefbank’s four part fundraising exercise on Tuesday, via joint leads Credit Suisse, Raiffeisen Bank Switzerland and UBS.
Swiss Pffandbriefbank issued a new Sfr250m November 2027 that was priced at 5bp over mid-swaps, a Sfr250m reopening of its September 2032 at 3bp over mid-swaps, a Sfr190m reopening of its October 2036 that was priced at 5bp through and a new Sfr230m April 2042 that was priced 10bp through.
The volume raised was considered “outstanding” by one lead given the issuer raised a much larger than expected Sfr1.35bn a month earlier. Demand was particularly impressive for the longest portion given a 15bp curve inversion relative to the shortest offering.
The 21 year delivered a 17bp yield and was predominantly bought by insurers trying to match their long duration of liabilities. The longest and shortest portions were oversubscribed and the other tranches were sized to demand.
ECB pick up pace
Bankers do not anticipate much in the way of covered bond issuance over the next six weeks with one banker suggesting the market could expect “an old school summer slumber,” in which there would probably be a “pronounced silence” from issuers.
He pointed to the low supply expectations for this year, but did not discount the slim possibility of a supply surprise.
Tuesday's and Wednesday’s deals came in the wake of purchasing data published by the ECB, showing that the covered bond purchase programme (CBPP3) had grown by €528m last week to €292.7bn.
The ECB bought €146m a day in the secondary market, somewhat greater than the previous three weeks. Based on expected covered bond settlements analysts at DZ research expected buying to increase next week.
Bankers believe the ECB could give further guidance on its Asset Purchase Programmes in next week’s strategy review.
Following recent comments from ECB president Christine Lagarde, bankers expected purchasing to run for longer.
Moreover, the €20bn a month rate of buying under the APP could be increased to help a prospective moderation in purchases under the Pandemic Emergency Purchase Programme.