NordLB became the latest German bank to benefit from a recalibration in euro covered bond market dynamics after a pause in supply, as it sold a more-than-four-times subscribed €500m 3.25-year covered bond on Monday.
The euro covered bond market has benefited from an easing of supply over the last few weeks. Issuance has slowed partly due to the onset of the summer holiday season and the implementation of the EU's covered bond directive. A lull was also to be expected after many issuers rushed to get deals done before the European Central Bank reduced the size of its primary market orders around the end of June, resulting in a fall in subscription ratios and a rise in new issue concessions.
With that supply now absorbed and with market participants looking ahead to a quieter second half of the year, bankers hailed an improvement in secondary market dynamics.
"It is interesting that the secondary market has shown more signs of life, with a bit more buying, and the widening has stopped," said a banker away from NordLB's deal.
"Perhaps that means the run of ever-cheaper deals – with each new issue coming cheaper than the last – is stopping a bit. [Issuance] volumes have dropped massively, so it makes sense that the market doesn't need those concessions any more."
That has presented an interesting opportunity for those issuers and jurisdictions that are still ready and willing to access the market.
German banks have led the way. LBBW garnered €4.5bn of demand for a €1bn February 2028 green Pfandbrief last Monday and was followed on Tuesday by compatriot Deutsche Pfandbriefbank (pbb), which sold a €750m March 2027 Pfandbrief on Tuesday, attracting more than €1.25bn of orders. The deals were priced at 5bp and 6bp, respectively.
NordLB then became the next to step up on Monday.
The bank has been a relatively infrequent issuer over the last couple of years. The new issue is its first benchmark Pfandbrief since September 2021, when it sold a €500m five-year green transaction.
Leads Erste Group, ING, Natixis, NordLB and Santander opened books for the no-grow November 2025 Pfandbrief with guidance of mid-swaps plus 8bp area.
With demand passing €2.1bn (including €200m JLM interest), the deal was priced at 3bp.
"The market needed a breather in terms of supply and we got that," said a second banker away from the deal. "Now, the market feels much more robust with healthy demand/supply patterns, which has worked out well for those issuers that decided to wait."
Bankers saw fair value around flat, implying NordLB paid a 3bp concession, which they noted was smaller than those paid by LBBW and pbb.