Covered Bonds

Alliance & Leicester signed its widely expected Eu10bn global covered bond programme backed by UK residential mortgages yesterday, and appears to have already issued a £500m one year FRN from the facility.

Banca Carige is setting up a Eu5bn covered bond programme that it plans to finalise by the end of September this year, according to an official at the bank. It intends to launch a subordinated debt deal first to improve capital ratios and give itself more freedom to issue covered bonds, although market participants suggested this was unlikely to be the beginning of a trend.

The Dexia group yesterday (Wednesday) demonstrated the diversity of funding options it enjoys, adding a jumbo Pfandbrief to its issuance this year. The Eu1.5bn two year issue nevertheless showed the limits of what banks can achieve in today’s market.

Investors are treading only carefully back into the renewed issuance in the covered bond market this week, not wholly convinced by the recent recovery in sentiment in credit markets and looking for guidance in a market where points of reference have become obscured.

The book has been closed on Dexia Kommunalbank’s Eu1.5bn two year public sector Pfandbrief this morning, with pricing set to follow this afternoon. The deal maintained the Pfandbrief’s strong performance by avoiding pricing above mid-swaps on the back of a strong order book.

DnB Nor has kept up the Norwegian theme to the week with a Sfr200m (Eu126m) eight year deal yesterday (Tuesday), making it the first foreign covered bond issuer to tap the Swiss franc market since the Swedish Covered Bond Corp on February 19.

Danske Bank yesterday (Monday) afternoon increased the size of its euro jumbo debut from Eu1bn to Eu1.25bn, in contrast to its decision earlier this year to eschew international issuance for more attractive domestic funding. German issuers are seen among the likely candidates to add further supply.

Norway’s Storebrand group is turning to covered bond issuance through Storebrand Kredittforetak AS. Its first issue is expected soon, but, according to Ingunn Gurvin, head of group treasury at Storebrand, the issuer will not be entering the jumbo market for the foreseeable future.

Covered bond volumes in Swiss francs have been up on the first quarter of 2007, but local bankers say that the headline number is misleading, concealing domestic investors’ unease with foreign credits. Even favourable movements in the basis swap between Swiss francs and euros do not look like being enough to open the market.