Covered Bonds

Luis Muscatt, formerly of NatWest Markets, has joined BMO Capital Markets as a covered bond and SSA trader.

Deutsche Hypo was unable to tighten pricing as much as it had hoped for a seven year Pfandbrief it issued on Tuesday. Demand was sufficient to cover the deal, excluding the European Central Bank's order, but only just enough, giving investors more power to resist spread cuts.

In January the European Central Bank bought more covered bonds as a proportion of net asset purchases than at any time in the past five years. That should stand it in good stead for the lean months ahead when supply will fall but redemptions will be even higher.

Berlin Hyp was unable to tighten pricing as much as it wanted for its seven year Pfandbrief on Monday, showing that a steep fall in yields this year is having a direct impact on the primary market. The transaction provided a clear warning to issuers who believe they should be able to price deals flat to their outstanding curves.

Deutsche Hypo has mandated lead managers for a Pfandbrief deal, choosing the same seven year maturity that Berlin Hyp opted for on Monday.

A trio of transactions issued this week by Santander UK and Nationwide Building Society have opened two new funding channels for UK issuers. The dollar covered bond market is now back as a strategic funding tool after a near 10 year absence and, for the first time, sterling seven year floating rate covered bonds are a viable funding option.

Cracks started to appear in demand for long-dated rates products this week, even as riskier credit markets went gung-ho in the face of the coronavirus outbreak. Now Spain could be set to test how bad the damage has been, as it is rumoured to be readying a 30 year syndication for next week. Burhan Kahdbai, Lewis McLellan and Bill Thornhill report.

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.