Keyword Search

Market wrap

Euro covered bond issuance could be poised to moderate next week, though it is still likely that one or two deals could emerge at short notice. Issuers outside Europe are less inclined to bring euro benchmarks as a change in the basis swap with dollars has reduced the difference in the cost of funding.

Mandates & deal pipeline

DBS is on course to become the first covered bond issuer from Singapore, having proposed a unique structure that will overcome the sticky issue of who has first claim on the asset pool. An agreement is close to being struck and the Singaporean lender is looking then to issue a benchmark size offering in either dollars or euros.

The Finnish issuer has mandated leads for a roadshow that starts on March 16.

Dutch issuer Van Lanschot Bankiers has become the third issuer to set up a conditional pass through programme, joining NIBC and UniCredit. Pending successful registration with the Dutch central bank, a deal should be coming soon.

The Swedish FSA’s proposals, requiring borrowers to pay down their mortgages to a loan to value of 50%, is credit positive for covered bonds, said analysts at Danske Bank research on Friday. The proposals, which were published on Wednesday, should lead to a decline in household indebtedness and should dampen house prices.

The European Central Bank owns 15% of eligible benchmark covered bonds since its third purchase programme (CBPP3) began. It could end up owning 40%, which could permanently disrupt the market.

Rating news

German banks have a larger exposure to Heta Asset Resolution — the bad bank of Hypo Alpe Adria — than Austrian banks, said Fitch on Thursday. Despite this, Fitch thinks losses should be manageable. Research from NordLB, also released on Thursday, shows the distribution of this risk across German Pfandbriefe cover pools.

Deal reviews

Deutsche Kreditbank closed the spread gap to its higher rated peer, Muenchener Hypothekenbank (Muhyp) on Thursday when it priced a 12 year mortgage Pfandbrief. The ambitious price was justified by the high quality book and comfortable level of oversubscription. Meanwhile Aareal Bank is out with guidance on its first RegS dollar benchmark, which will be priced later today.

After a three year absence, Bankia returned to the covered bond market in style on Wednesday. With a coupon that’s likely to pay a rare 1%, the issuer was able to attract a high quality, well oversubscribed, diversified book and paid virtually no new issue premium.

Nordea Finland attracted almost equal interest for both tranches of its 5.25 year and 12 year covered bond that was priced with barely any new issue premium on Tuesday. This symmetry to demand defied convention and illustrated strong comfort in the credit which enabled investors to reach for yield with a high degree of confidence.

The UK’s Coventry Building Society spurned the conventional three year sterling floating rate covered bond sector, and following its recent roadshow, sold a five year floating rate sterling benchmark covered bond on Tuesday.

Muenchener Hypothekenbank (MuHyp) issued the tightest ever 10 year covered bond on Monday with a book that was built in record time. At €750m the deal was much larger than anything seen in Germany in this tenor for several years. The strong uptake underscores the fact that, despite the extraordinarily tight price and large size, the rare transaction offered compelling relative value.

Analyst research

Deutsche Pfandbriefbank (pbb) and Dexia Kommunalbank are both exposed to bonds which are likely to be written down following the debt moratorium issued by Heta Asset Resolution — the Hypo Alpe Adria bad bank — last week. Several other German covered bond issuers are likely to be affected, said Commerzbank analysts. Austrian issuers are also being hit and have been put on review for downgrade by Moody’s.

The newly updated covered bond map from The Cover, in conjunction with Société Générale, is now available online and in hard copy.

Secondary market

The European Central Bank bought more than €50bn of covered bonds in the first four months its third covered bond purchase programme (CBPP3). It now owns over 13% of the benchmark CBPP3 eligible market and could end up owning nearly 40% by September 2016.

In-depth analysis and interviews

The Cover interviews Luca Bertalot, head of the European Covered Bond Council, and Carsten Trisbæk Madsen, Chairman of the ECBC, on how covered bonds and dual recourse structures can play a role in Europe’s Capital Markets Union. [Best seen on Google Chrome or the latest version of Internet Explorer]

Nationwide Building Society will begin meeting buyers at the ABS Vegas conference on Monday where it is marketing a multi-currency RMBS. The move represents a broadening of the issuer’s return to core funding markets which began in earnest in 2014 when it issued four covered bond benchmarks.

The Covered Bond Label Foundation (CBLF) has appointed Wojciech Zielonka, senior vice President of the Canada Mortgage and Housing Corporation (CMHC), as the Canadian national representative on its advisory council.