Germany

German Pfandbrief issuers have pushed primary spreads to record lows, but with minimal hope for secondary performance at such tight levels investors could start to push back on pricing.

Münchener Hypothekenbank made history this week, pricing the tightest ever euro benchmark covered bond. Despite the sub-Euribor level the public sector backed deal drew broad European demand that surprised even the issuer, a spokesman for which told The Cover it intends to return with another benchmark deal later in the year.

Austria’s Raiffeisenlandesbank Niederoesterreich-Wien (RLB NW) sold its inaugural benchmark covered bond on Tuesday, building a four times oversubscribed book for a 10 year mortgage backed trade.

Münchener Hypothekenbank on Monday launched one of the tightest euro benchmarks ever sold and took covered bonds into sub-Euribor territory for the first time in over four years.

UniCredit’s German arm HypoVereinsbank (HVB) returned to the covered bond market for the first time in almost a year on Monday. HVB extended its curve by seven years with a 10 year mortgage Pfandbrief, and divided syndicate bankers with its pricing.

Deutsche Bank brought the covered bond market to the brink of sub-Euribor pricing on Friday, issuing a €750m eight year mortgage Pfandbrief just a single basis point above mid-swaps. With the secondary squeeze grinding onwards syndicate bankers said it was only a matter of time until the Euribor barrier was broken.

Moody's has assigned a top rating to Landesbank Berlin’s (LBB) Daheim Series 1-2012 structured covered bond, a deal notable for its lack of a Pfandbrief label.

SSA and corporate markets were busy on Tuesday, keeping the primary covered bond quiet. But issuance should improve this week as investors filter back from holiday, said bankers, though they warned that as spreads have tightened a long way in a short time the market may widen after the initial flurry of deals.

Germany’s Schuldschein product could be set to develop into a new area, with issuers calling for a secured format.

Amendments, adopted this week, to Germany’s Pfandbrief Act that increase transparency are positive for investors but there will be no ratings impact from the Article 28 changes, said Fitch.

This week’s two covered bond deals have helped increased activity in secondary markets, traders told The Cover. There has been selling pressure in the senior unsecured but this has only translated to more mixed flow in covered bonds.

Covered bond issuers proved reluctant to follow ING’s lead and launch trades on Tuesday, as activity shifted to the senior market. But given the strong reception for secured issuance syndicate bankers remain confident of supply later in the week.