Covered Bonds

Caffil, Santander Consumer Finance and Hamburger Sparkasse enjoyed exceptionally strong receptions for what were tightly priced covered bonds issued this week.

Nationwide Building Society is book building for a three year dollar covered bond on Wednesday, in which the coupon extension period is linked to Sofr, but with a "nuanced difference" to the similar deal issued on Tuesday by Santander UK.

Santander Consumer Finance in Germany attracted excessive demand for its debut benchmark Pfandbrief which offered a considerable pick-up over swap rates. However, demand was more tentative for La Banque Postale’s 15 year, possibly due to renewed volatility in rates.

Covered bond investors are optimistic about the outlook for their market, with one big buyer telling GlobalCapital on Wednesday that it still offers good relative value. And, with ECB demand much higher than last year, the market still has scope to perform.

Santander UK was set to issue the first ever covered bond linked to Sofr on Tuesday, as part of a dual-tranche offering that established a number of other firsts. The deal included the first 144A dollar covered bond from a UK issuer since 2012, the first seven year covered deal linked to Sonia, and it also marked the first time that a borrower has sold dollar and sterling covered bonds simultaneously.

Caffil found good demand for a tightly priced €750m 20 year covered bond on Tuesday — the longest maturing deal issued by a core European bank so far this year. Hamburger Sparkasse was able to launch an eight year Pfandbrief benchmark in the same window, also without giving away much of a premium.

Erste Group issued the best covered bond in January according to GlobalCapital’s newly updated BondMarker — which is now derived from facts, as opposed to survey-based opinion.

Caffil mandated lead managers on Monday for the longest core European covered bond of the year so far. The deal takes advantage of the surge in demand for absolute return following a plunge in yields that has taken most of the covered bond market into negative yielding territory. Bankers are also hopeful that Nordic covered bond supply will emerge this week.

January's total primary covered bond volume was the second highest since 2014, albeit 25% down on last year in euros. February is typically a much slower month, but supply could keep pace if issuers look to the asset class for execution certainty amid mounting concern around the potential impact of a new coronavirus in China.

Lloyds Bank and National Australia Bank issued two very well received Sonia linked sterling covered bonds this week, taking advantage of demand spotted in a deal issued by Royal Bank of Canada last week.

Caisse de Refinancement de l’Habitat (CRH) managed to attract demand of more than €6bn for a two part eight and 15 year transactions issue on Tuesday, while Société Générale subsequently issued a €1bn 10 year green covered bond flat to its curve with demand of €3bn.

Korean Housing Finance Corporation (KHFC) issued its first €1bn-sized covered bond and first negative yielding Asian covered bond on Wednesday. The strong reception was in keeping with two German Pfandbriefe also issued this week by Deutsche Apotheker- und Ärztebank (Dapo) and Sparkasse Pforzheim Calw.