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Scramble for German assets boosts Pfandbriefe
May 30, 2012 / 3:47 PM / 6 years ago

Scramble for German assets boosts Pfandbriefe

LONDON, May 30 (IFR) - Investors’ desperate scramble to buy safe assets allowed German banks to sell covered bonds several percentage points lower than where Italy struggled to auction debt on Wednesday.

Just days after Germany issued a Schatz with a zero coupon, Munchener Hypothekenbank and HSH Nordbank sold new Pfandbrief deals, the latest in a string of tightly priced German covered bond transactions in recent weeks. Bankers said that Pfandbriefe were increasingly being perceived as proxies for Germany.

Deutsche Bank is set to follow suit on Thursday with a EUR500m 10-year Pfandbrief.

MueHyp paid just 1.75% (mid-swaps plus 10bp) to borrow EUR1bn for 10 years; meanwhile, HSH Nordbank printed a EUR500m four-year bond at just 18bp over mid-swaps and a paltry coupon of 1.125%. Both transactions were sold at the tight end of revised price guidance and were both oversubscribed. Italy raised 10-year debt at a 6.03% rate while the yield on its five-year auction jumped to 5.66% from 4.86% at the end of April.

The Pfandbriefe transactions follow hot on the heels of LBBW, Berlin Hannoverische Hypothekenbank and Deutsche Pfandbriefbank, which all brought Pfandbriefe last week. LBBW’s five-year came at 7bp over mid-swaps, the tightest print of the year. The deal has already tightened further, by 3bp-4bp.

“We are in such a tiered market and it is getting more and more pronounced every day,” said one syndicate banker.

“The levels German issuers are able to achieve are phenomenal. HSH coming at 18bp is amazing really. This is a name that has always found it difficult to sell bonds in the market and now it’s flying out of the door. This shows that even the weaker names in Germany can attract great demand as investors feel that there is little else they can buy they feel safe in.”


A banker involved in the MueHyp trade agreed that the level was rich.

“Deals are coming tighter and tighter, even though the world is falling apart,” he said. Bankers on the transaction pointed out that despite the tight spread it still offered a pick-up of over 63bp over German Bunds.

Bund futures rose to an all-time high of 144.62 on Wednesday and 10-year German bond yields hit a record low of 1.34%.

Another banker agreed that the pricing was tight, saying “10bp over is expensive for Pfandbriefe, but it’s a cheap Bund”.

Managers on the trade, Deutsche Bank, DZ Bank, Goldman Sachs, Nomura, UniCredit and WGZ, agreed that there were no real comparables for the deal as issuance from German banks has been light, particularly at the longer end.

“Investors see the name, know it’s scarce and will accept pricing, even if very tight,” said one.

Munich Hypo’s last benchmark was in January 2011, a EUR1.25bn 2.5% January 2016 bond that came at 10bp over mid-swaps.

It nearly brought a deal at the end of last year, having mandated Credit Suisse, Deutsche Bank, DZ Bank, Goldman Sachs and Nomura, but the trade never came to fruition.

“Munich Hypo was never in any rush to print and chose to wait at the end of last year given that the market was not optimal,” said a banker involved. “By waiting, they got the perfect outcome and they have been able to take advantage of the strong bid for German Pfandbriefe.”

Books on the MueHyp were over EUR1.5bn, while HSH was twice covered for the EUR500m size.

Deutsche Bank will bring its mortgage Pfandbrief no later than Thursday. Lead managers initially began testing investor interest on Wednesday at mid-teens over mid-swaps. (Reporting by Helene Durand, Editing by Alex Chambers)

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