Covered Bonds

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.

Deutsche Apotheker- und Aerztebank (Dapo) underlined just how strong the primary covered bond market is on Thursday by wrapping up a busy week's supply with what was arguably the tightest German deal of the year so far.

Korean Housing Finance Corporation (KHFC) issued its first €1bn-sized covered bond on Wednesday and priced the deal inside fair value. At the same time, Société Générale issued a €1bn 10 year green covered bond flat to its curve with eye-catching demand.

Demand for covered bonds has surged higher in recent weeks, even though yields in the asset class have plunged lower. But issuers should not get too excited, as the balance of power is sure to tilt back in the favour of investors if yields carry on falling.

Caisse de Refinancement de l’Habitat (CRH) managed to attract demand of more than €6bn for its two part eight and 15 year transactions issue on Tuesday, with the bonds pricing tighter than where BPCE recently issued similar deals and with considerably more demand — despite a 22bp plunge in yields and with consistent demand from the European Central Bank.

National Australia Bank attracted healthy demand for its £1bn five year Sonia-linked covered bond issued on Tuesday, pricing the deal much tighter than where Commonwealth Bank of Australia issued two weeks ago with more demand and at an equivalent cost of euro funding.