Covered Bonds

A return to dollar funding by SSA borrowers capitalising on higher yields last week dragged the average subscription ratio lower.

Increased consumer spending leading to a fall in deposits would provide the catalyst for higher covered bond issuance, according to one European bank's head of funding. But only if the credit curve steepens and senior debt grows more expensive to raise relative to covered bond funding.

UniCredit’s German subsidiary, HVB, is expected to open order books for a 10 year benchmark on Tuesday. With swap yields currently just positive, the deal has a slim chance of offering a positive return.

Bankers do not expect to a resurgence of primary covered bond supply in March with banks expected to focus on regulatory issuance. ECB covered bond purchase data was due on Monday afternoon, with market participants eager to see if the central bank increased its buying to contain the recent rise in yields at the long end of the curve.

Senior bank finance and capital markets figures speculated this week about where the ECB would be most likely to throw its weight in its effort to boost the sustainability of its balance sheet. With a senior eurozone central banker having recently urged it to decarbonise its assets, banks are on high alert as they anticipate sweeping changes to asset purchase and repo terms, writes Bill Thornhill.

The transposition of the EU's Covered Bond Directive (CBD) into Spanish law is likely to be credit positive, according to a poll of delegates who attended the Association of Financial Markets in Europe’s 12th annual Spanish Capital Markets Virtual Conference on Thursday.

Raiffeisenlandesbank Vorarlberg launched a 15 year covered bond on Wednesday that was three times subscribed and priced flat to fair value. It suggested that investors were eager to catch higher yields before they disappear.

The outlook for covered bond spreads has improved following this year’s rise in yields, although there is contention over whether the short or long end of the curve is the best place invest.

NN Bank took advantage of rising yields to issue a 20 year covered bond on Tuesday which was priced inside fair value.

NN Bank has mandated leads for a 20 year covered bond amid improved hopes of an increase in supply, as banks emerge from blackout to take advantage of the recent rise in yields.

This week’s ground-breaking 10 year Sonia index-linked covered bond transaction from Nationwide is most likely to appeal to other UK Building Societies, as opposed to the large UK commercial banks who have a larger proportion of suitable assets to access central bank funding.

The depth of demand for financial institutional funding in the domestic Scandinavian currency markets was illustrated this week with a series of covered bonds and subordinated new issues.