Berlin Hyp issues first negative-yielding Pfandbrief

Berlin Hyp has become the first German bank to issue a Pfandbrief covered bond with a negative issue yield.

The bank announced today (8 March) that it had successfully issued the €500 million, three-year bond with a coupon of zero percent and a yield of minus 0.162 percent.

Several three-year covered bonds are trading below zero percent, but this marks the first Pfandbrief to reflect a negative yield at issue. German real estate banks’ extremely low cost of funding has allowed them to be among Europe’s most competitive in terms of loan pricing.

“We are very pleased to have successfully issued this Pfandbrief, the first one with a negative yield,” commented Gero Bergmann, member of the board of management responsible for Berlin Hyp’s capital market business.

“For months now we have been observing one maturity after the other going into negative yield territory. On account of this trend, it was only a matter of time before the first benchmark issue with negative yield took place on the covered bond market,” Bergmann continued.

“As refinancing with matching maturities is highly important to covered bond issuers, we hope now that there will be a return to more short-term issues on the market. The interest in our Pfandbrief that we were able to generate among investors despite the extraordinary circumstances is evidence of their confidence in our business model. This success further shows the importance of maintaining close contact to investors.”

Berlin Hyp’s Pfandbrief is rated Aaa and AA+ by Moody’s and Fitch respectively. The syndicate banks assigned by Berlin Hyp – Crédit Agricole, DekaBank, JP Morgan, LBBW and UniCredit – opened their order books at 9am this morning with an initial spread guidance of mid-swap plus 4 basis points.

In just over an hour, orders with a total volume of almost €1.5 billion were generated from 39 investors, enabling the lead managers to close the order book at 10.20am and price the bond at 1 basis point over mid-swap.

German investors took 72 percent of the Pfandbrief, followed by investors from the UK (9 percent) and Scandinavia (6 percent). Banks accounting for 53 percent of take-up.