Covered Bonds

Restructured German ship lender, Hamburg Commercial Bank, has announced a tender offer for covered bonds on Wednesday. At the same time, Berlin Hyp (BHH) announced that it had bought almost €300m Pfandbrief in a recent tender which it plans to refinance with a longer dated deal.

DZ Hyp managed to raise €1bn of eight year Pfandbrief funding flat to its curve on Wednesday. The deal contrasted with one from Axa Banque SFH, which paid a much larger premium for a €500m 15 year, possibly due to far higher French supply this year and confusion with Axa Banque Europe SCF, which has already entered the market four times this year.

Recent events have neatly illustrated the fickle state of market sentiment and suggest that a broad spectrum of borrowers in the corporate and bank finance markets should not waste time in getting their most difficult or important deals done while the window remains open.

Axa Banque SFH mandated leads on Tuesday for its first deal of the year, a €500m 15 year, while DZ Hyp has appointed leads for a benchmark eight year Pfandbrief.

Caisse Francaise De Financement Local (Caffil) lost €700m of orders after deciding to price its €1bn 10 year covered bond flat to OATs on Tuesday. But in contrast Vseobecna uverova banka (VUB) was able to price comfortably inside fair value largely because its deal offered a substantial pick-up to other covered bonds.

BBVA is expected to take advantage of recent changes to Pillar 2 requirements with a greater proportion of senior preferred issuance but it has a modest need for subordinated issuance. The Spanish national champion also plans to make use of its Targeted Longer-Term Refinancing Operation (TLTRO) allotment from the ECB, which has been substantially increased.

Caisse Francaise De Financement Local (Caffil) has mandated lead managers for its third covered bond this year and plans to open order books for a euro denominated 10 year transaction, the third from a French issuer since May.

Slovakia's Vseobecna uverova banka (VUB) will offer covered bond investors a rare chance to buy bonds with a considerable pick-up to core European deals, having mandated leads for a €500m five year deal rated Aa2 that is expected to be launched on Tuesday, subject to market conditions which have recently deteriorated.

Covered bond spreads in euros have already recovered more than half of the widening that they suffered through March and April due to the coronavirus pandemic. Market participants are now scrambling to find the bargains as returns vanish once again.

A wide gamut of deals across asset classes filtered through the Swiss franc market this week. Gyrations in swaps allowed Crédit Agricole to come flat on euros on Thursday, while also giving investors a great deal on a long end Lausanne trade.

Market participants re-examined the prospects for covered bond supply in sterling this week in the wake of two deals from SSA borrowers in the currency. Spreads have tightened and issuance conditions have improved but that will have to be balanced against bargain basement priced funding available from central banks, bankers said on Thursday.

Market participants expect European banks to take a large chunk of funding through the European Central Bank’s Targeted Longer-Term Refinancing Operations (TLTRO III) programme, hitting covered bond supply levels. But issuance in other asset classes should remain unaffected as banks follow through with their funding plans.