Covered Bonds

Two more bankers have ditched NordLB to take on DCM roles at Helaba, as the firm looks to expand its covered bond business.

Issuers are struggling to obtain the necessary internal approvals to issue covered bonds, given how expensive the instruments are compared to the European Central Bank's Targeted Longer Term Refinancing Operations (TLTRO III).

Bank bond spreads widened further on Thursday amid growing numbers of infections in Europe and the US. Deal arrangers say that issuers will need to be more careful about choosing the right issuance window as markets remain choppy.

Coöperatieve Rabobank launched a 10 year covered bond at a spread of 7bp over mid-swaps this week, leaving a small new issue concession for investors. The deal also underlined the recent recovery of credit spreads amid the coronavirus pandemic.

Recent share price movements imply that a third of the loans under moratoria at Italian banks could end up as unlikely to pay (UTP) exposures, according to analysts at Equita, an investment bank, who expect that the true figure could be closer to 10%.

Korea Housing Finance Corp (KHFC) has hired lead managers for a new social covered bond in the euro market. It is its second such deal in the currency this year, and it could face tougher conditions this time.

Investors appeared to be more sensitive of price movements in new issues of covered bonds this week, with valuations in the asset class having returned to within touching distance of their January levels.

European Central Bank funding proved irresistible for lenders across the eurozone this week, with participation in the latest round of Targeted Longer-Term Refinancing Operations (TLTRO III) reaching a record €1.31tr. The astonishing take-up will cement expectations for fewer deals and more buy-backs in the FIG market, as well as the return of the government bond carry trade, write Tyler Davies and Bill Thornhill.

DZ Hyp managed to attract a healthy order book for a €1bn eight year deal issued on Wednesday, a day before a more narrowly subscribed €1bn 10 year from UniCredit’s German subsidiary, HVB.

Caisse Française de Financement Local lost €700m of orders after pricing a €1bn 10 year covered bond flat to OATs on Tuesday. Axa Bank SFH offered a generous new issue concession a day later on a €500m 15 year that came well inside the French government curve.

Covered bonds issued by SR Boligkreditt and Vseobecna uverova banka (VUB) this week were well subscribed, reflecting the generous spreads they paid compared to deals by issuers from core Europe.

Deals issued on Thursday by SR Boligkreditt and UniCredit Germany (HVB) illustrated that investor demand is skewed to bonds that offer a pick-up, no matter how small.