Covered Bonds

In an illustration of the spread tightening under way in covered bonds, Deutsche Apotheker-und Aerztebank (Dapo) priced a 10 year inside its curve this week. At the same time Raiffeisenlandesbank Vorarlberg followed DZ Bank into the 15 year tenor to give a tempting reoffer yield of almost 50bp.

A major investor in covered bonds told GlobalCapital this week that his firm was still positive on the near-term outlook for eurozone covered bonds, as they had lagged behind a more general credit spread tightening. That meant covered bonds still offered attractive value compared with government bonds, while the European Central Bank was stepping up its buying.

Hamburg Commercial Bank is offering to buy back up to €1bn of its Pfandbrief notes, as the newly privatised German lender seeks to reduce its assets and liabilities in line with one another.

Caixa Economica Montepio Geral (Montepio) mandated leads for the second Portuguese covered bond of the year on Tuesday, and NordLB Luxembourg has signaled its intention to press ahead with its debut renewable energy covered bond following a roadshow.

Caffil issued the tightest French 10 year of 2019 amid a flurry of other well received covered bonds issued on Tuesday by DZ Hyp, mBank and Santander UK. While the European Central Bank’s return to the market helped deals go well, it was not needed amid an improvement in risk appetite.

Caffil, Crédit Mutuel Arkéa, Danish Ship Finance, Deutsche Bank, DZ Hyp, mBank, and NordLB are lining up a plethora of unusual and inaugural issuance, as they look to benefit from the European Central Bank’s decision to resume net purchases at higher-than-expected volumes.

The European Central Bank’s (ECB) overarching presence in the covered bond market was conspicuous this week but, with relative value waning and yields likely to fall, it may not prevent spread widening early next year. There was evidence of its hand too in the corporate bond market. Bill Thornhill, Burhan Khadbai and Mike Turner report.

Deutsche Bank will meet investors next week to market a structured covered bond, people familiar with the deal told GlobalCapital on Thursday. The bank will enjoy a material reduction in the cost of funding compared with senior preferred debt and will still be able to offer investors a big pick-up to Pfandbriefe, meaning the innovative deal has already sparked widespread interest from rival issuers and investors alike. Bill Thornhill reports.

Poland's mBank Hipoteczny has mandated leads for a roadshow ahead of a planned sub-benchmark sized deal. It could surface in a busier than expected market in November now that some issuers will be reconsidering their funding strategies after the European Central Bank bought more than anticipated in the primary market this week.

Demand for covered bonds issued on Wednesday by Deutsche Kreditbank (DKB) and BPCE exploded towards the final hour of book building, as the European Central Bank placed crushingly large orders for the deals. Even though the granularity of the order books was good on this occasion, the central bank’s larger than expected presence was expected to displace real investors.

Deutsche Bank plans to sell a structured conditional pass-through (CPT) covered bond that is packed with commercial mortgages and has a double-A rating. The collateral-efficient funding makes perfect sense for the issuer and, in a negative yield environment, it could also potentially be interesting for certain investors.

Sparebank 1 Boligkreditt (Spabol) took advantage of positive swap yields to issue a well-subscribed €1bn 10 year this week. Danmarks Skibskredit and mBank are likely to follow soon, having each mandated lead managers for covered bond roadshows.