Covered Bonds

“What gets measured gets managed,” goes an old saw popular in sustainable finance circles. If companies, investors and banks, the argument says, collect better environmental and social data, this knowledge will naturally breed improvements in performance.

Nationwide Building Society issued the first UK covered bond of the year, the first to test appetite since Brexit was concluded and the first UK deal with a 20 year tenor in euros. As such it offered a particularly rare opportunity to get some spread and yield pick-up.

Muenchener Hypothekenbank (MuHyp) priced the tightest ultra-long dated Pfandbrief in 18 years this week, setting the record a day after Bayerische Landesbank (BayernLB) priced the tightest covered bond of the year and the tightest Pfandbrief since late 2018.

Laurentian Bank has wasted little time getting its newly set up covered bond programme a top rating with DBRS and is now undertaking a roadshow with plans to sell its first deal in Canadian dollars. It is also looking at subordinated issuance in local currency.

Crédit Mutuel Home Loan and Natixis Pfandbriefbank secured tight pricing for 10 year covered bonds on Wednesday, as borrowers made haste to access sublime issuance conditions in the euro market.

French and German banks have led the resurrection of the primary covered bond market over the last two weeks, with the sterling market particularly active. They have been making the most of good conditions for borrowers. So far this year, covered bond issuers have paid an average concession of 0.15bp compared to the 2.93bp they paid in 2020.

Muenchener Hypothekenbank (MuHyp) issued its second ultra-long dated Pfandbrief of the year on Tuesday, flat to the curve and into good demand at the tightest spread for this tenor and longer in the past 18 years.

Investors wasted little time placing orders for Nationwide Building Society’s 20 year covered bond on Tuesday, reflecting the rare and chunky yield on offer and the expectation that this could potentially be their only chance to buy UK covered bonds in euros this year.

Nationwide Building Society plans to issue the first euro denominated covered bond from a UK issuer this year and the first since Brexit was concluded. The €500m deal comes after a series of successful Canadian covered bonds, but unlike them it has a much longer 20 year maturity.

Bayerische Landesbank (BayernLB) was set to price the tightest covered bond of the year on Monday and the tightest Pfandbrief since late 2018, boding well for two follow-on transactions from Muenchener Hypothekenbank and Natixis Pfandbriefbank.

Bayerische Landesbank (BayernLB) is readying to issue its first covered bond in over two years, having appointed banks on Friday to sell a 10 year deal.

Covered bond bankers were optimistic about the outlook for green issuance after the European Commission published the EU Taxonomy Climate Delegated Act, which as far as real estate is concerned, is broadly in line with the recommendations set out by its technical expert group, current industry standards and a draft circulated earlier this week.