Covered Bonds

Belfius Bank issued the first Belgian covered bond of 2019 on Monday. Although the order book built slowly, the tightly priced 10 year attracted solid demand.

Although the European Central Bank (ECB) hasn’t said yet how it intends to split buying across the €20bn of net asset purchases that it plans on making each month, it is likely covered bonds will form an integral part. And if covered bonds tighten, that probably means much else will be dragged along for the ride.

Investors bid a warm welcome to a heap of new bonds from financial institutions this week, spurred on by the knowledge that the European Central Bank would soon be back as one of the biggest buyers in the market. Bill Thornhill and Tyler Davies report.

German Pfandbrief issuers DZ Hyp and Landesbank Hessen-Thüringen Girozentrale (Helaba) enjoyed strong receptions for their €1bn Pfandbriefe issued this week. Bankers suggested that the German market had a good chance to perform.

Lloyds Bank, Virgin Money and Skipton Building Society took advantage of an improvement in market conditions since the European Central Bank’s policy meeting, and the UK Parliament’s efforts to legislate against leaving Europe without a deal, to issue a string of successful covered bonds this week.

The order book for Landesbank Hessen-Thueringen Girozentrale’s (Helaba) €1bn 10 year public sector backed Pfandbrief was quick to build reflecting the view that the bonds were priced cheaply and that spreads will almost certainly tighten, said bankers.

Two Canadian issuers revitalised the dollar covered bond market this week as Royal Bank of Canada raised €1.5bn of three year funding on Tuesday at half the cost of its senior funding and at a substantially lower cost than a year ago. The transaction was followed by Fédération des caisses Desjardins du Québec (FCDQ) which opened order books for another three year on Thursday.

Liberbank’s inaugural covered bond issued on Wednesday showed that investors are still hungry for paper that offers a positive yield and good relative value. The Spanish deal drew more than twice as much demand as Skipton Building Society’s competing negative yielding transaction, which was the third UK covered bond issued this week.

Demand for euro covered bonds issued on Tuesday by Virgin Money, NN Bank and DZ Hyp has markedly improved from earlier this month, and lead managers have announced a further series of transactions from Royal Bank of Canada, SR Boligkreditt, Skipton Building Society and Liberbank.

A breakdown of how investors, issuers and lead managers voted in the covered bond awards survey 2019.

Lloyds Bank attracted a large and diverse order book for its €750m 10 year covered bond on Monday and has provided ‘the last missing piece’ for bankers working on Virgin Money’s debut euro covered bond, which is expected to be announced soon.

Congratulations to the winners of GlobalCapital's Covered Bond Awards 2019.