Covered Bonds

Sparebanken Sør Boligkreditt will become the fourth Norwegian bank to issue a green covered bond after mandating leads for a roadshow on Thursday. It follows the first green covered bond by Norway’s SR Boligkreditt and a vanilla deal from Møre Boligkreditt issued this week.

Sparebanken Sør Boligkreditt will become the fourth Norwegian bank to issue a green covered bond and has mandated leads for a roadshow following publication of its green and sustainability framework.

The financial institutions bond market has absorbed an enormous volume of supply over the past month, putting a strain on trading levels for outstanding securities. FIG bankers nonetheless expect that spreads could start to tighten once more in the coming weeks, amid a calmer flow of new issuance.

Covered bond market conditions are now improving as the new quarter ushers in a fresh wave of investor cash. With supply expected to fall and the European Central Bank (ECB) likely to step up purchases, spreads should tighten. But investors believe that as real money buyers are inclined to protect their profits, they will gradually retreat from this market.

Investor demand for Møre Boligkreditt’s five year covered bond issued on Wednesday was well in excess of the deal size — even though the negative yield of minus 0.269% means they are bound to lose money if they hold it to maturity.

SR Boligkreditt attracted robust demand for its first green covered bond on Tuesday, enabling the bonds to be priced with a minimal concession.

A Banca Monte Dei Paschi di Siena (MPS) €1bn seven year issued on Tuesday was the most oversubscribed covered bond of its size issued this year and, with 300 investor orders, attracted the most granular order book of the year by a wide margin.

Caisse de Refinancement de l'Habitat (CRH) returned to the covered bond market after a six year absence with a transaction that resonated well with the market, according to the bank’s chief executive, Marc Nocart.

Banca Monte dei Paschi di Siena is getting ready to sell a new seven year covered bond in euros, in what will be its fifth deal in the currency so far this year.

The risks associated with issuing at negative yields will drive non-European issuers away from the euro covered bond market, according to a report from NordLB.

Some covered bonds issued recently have lacked sparkle, causing concern over the outlook. Even so, spreads still have good scope to tighten, especially in core Europe and the short end of the curve, though possibly not until the start of October, said two traders on Friday.

Royal Bank of Canada on Thursday became the first international bank to issue a five year Sonia linked covered bond, a trade that delivered competitive pricing and sizeable funding.