Covered Bonds

BNP Paribas Covered Bonds priced its three year issue in the middle of guidance and with a size of Eu2bn this lunchtime, having built a book of more than Eu3bn in what one syndicate official away from the deal called the most successful deal of the week. However, the pricing outlook for French covered bonds is unclear, with the Banque Populaire group (BFBP) coming out with guidance of 20bp-22bp over and still no sign of a deal from Compagnie de Financement Foncier, which gave a mandate for an issue at the beginning of last week.

DnB Nor Boligkreditt is the latest covered bond issuer to join the pipeline and could tap the market imminently, despite supply being as busy as anyone can remember and pricing expectations being constantly revised. The effects of Banco Espiríto Santo’s Eu1.25bn three year coming at a wider than expected 20bp over mid-swaps are still being felt around the market.

Kommunalkredit Austria showed the gulf between public sector covered bonds from established, legislative jurisdictions and the mainly structured mortgage issuance this week by coming out with price guidance of mid-swaps flat for a four year deal via Citi, Dresdner Kleinwort and UBS today.

Banco Espírito Santo priced its first covered bond yesterday at 20bp over mid-swaps. The Eu1.25bn three year mortgage backed deal received orders of almost Eu1.9bn, demonstrating the robust nature of the primary market and enjoying a strong secondary performance.

The books were opened for Bank of Montreal’s (BMO) debut covered bond today and by mid-morning some Eu700m of orders had been placed, with the book continuing to build. The benchmark sized, five year euro deal is being marketed with guidance in the 24bp area and has yet to be refined.

The wheels have so far shown no signs of coming off the primary covered bond market, and new mandates have been announced from a broad range of jurisdictions. Canada’s Bank of Novia Scotia, the Netherlands’ SNS Bank and France’s BNP Paribas are all expected to come to market in the near future.

Banco Espiríto Santo’s inaugural covered bond, a three year mortgage backed benchmark, had gathered over Eu1.4bn of orders by noon, with the pricing fixed at 20bp over mid-swaps, from initial guidance in the plus 20bp area, getting the week off to an encouraging start ahead of further expected supply.

The ECBC’s recommendation that covered bonds trading at 20bp or more above Euribor be quoted at market-makers’ discretion was having little impact on trading this morning, but that did not stop it from coming in for criticism from those on the wrong side of the 20bp level, even if the move was something that many market participants welcomed.

Landesbank Berlin has mandated Deutsche Bank, Dresdner Kleinwort and UniCredit for a public sector jumbo Pfandbrief issue, which is expected after a European roadshow later this month. Meanwhile, the bank’s plans to launch what would be the first structured covered bond from Germany are still live.

Lengthy meetings today and yesterday on market-making obligations have led to a landmark re-think from the European Covered Bond Council which draws a line in the market at Euribor+20bps.

The covered bond market sprang into action this week, with high levels of over- subscription for several short-dated issues. However the market seemed initially intolerant and prone to penalise an unwanted maturity and structure, with Royal Bank of Canada’s ten year structured covered bond encountering trouble on its way to gathering an order book of Eu1.5bn on a 1.25bn deal. The secondary market’s recent distemper continued to lurk and came to the surface with light provocation.