Covered Bonds

Covered bond spreads look well supported for the next few months, traders said this week. But concerns that the European Central Bank may begin tapering purchases just as the European Union ramps up issuance is causing some concern for the longer term.

Sparebank 1 Boligkreditt (Spabol) priced a €1bn 10 year Norwegian covered bond flat to fair value on Thursday with demand of more than €2bn, showing, once again, the effect of investor demand in an environment of unprecedented negative net supply.

DNB Boligkreditt issued a €1bn seven year covered bond at flat to fair value with strong demand on Wednesday, providing encouragement for Sparebank 1 Boligkreddit (Spabol) which mandated leads for a follow-on 10 year Norwegian covered bond.

Nationwide Building Society made a small piece of history in the covered bond market last week. The UK building society printed the first covered deal in euros from a UK bank since Brexit. It was also the issuer's first 20 year and the first covered bond in that maturity from anywhere outside the eurozone. Senior funding manager, Krishan Hirani, spoke to GlobalCapital about the genesis of the deal.

The Pfandbrief market is in the middle of a tumultuous year which includes not only the adoption of the EU's Covered Bond Directive but also digesting the bloc's Taxonomy for Sustainable Activities. Of course, this is all happening against the backdrop of the coronavirus pandemic and lockdowns, which have hit the commercial real estate market that underpins much of the product. Jens Tolckmitt, chief executive of the Association of German Pfandbriefbanks (vdp), spoke to GlobalCapital about how the market has coped.

Recent trades have demonstrated just how sublime primary market conditions are for covered bond issuers, stoking a revival of the previously dormant sector.

DNB Boligkreditt took advantage of strong market conditions to mandate leads for its second covered bond of the year on Tuesday.

Bawag became the first Austrian issuer to price a covered bond through mid-swaps since June 2018 on Tuesday when it issued a benchmark 10 year that attracted strong initial order momentum and an exceptionally granular order book. At the same time Austria’s Covered Bond Act consultation came to an end, suggesting the new legal framework will soon be enacted.

Kommunalkredit was the first name to throw its hat into what bankers are expecting could be a busy week in FIG primary markets next week. The Austrian lender is set to syndicate its senior deal as a private company next week, with a covered bond refinancing set to follow later this year.

“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.