Covered Bonds

Société Générale’s €1bn eight year and Credi-Mutuel CIC’s €1bn five year are leading the way with the highest mark of all French covered bonds issued this year on GC Bond Marker. But with the survey still open on Caffil’s recent €1bn 10 year social debut, these two issuers could well be knocked off the top spot.

Dutch issuer NN Bank attracted twice as much demand for its conditional passthrough (CPT) covered bond on Wednesday as its compatriot Achmea managed last week. Moreover, the issuer was able to tighten the spread much further from the initial level, enabling it to be priced with virtually no new issue concession.

UniCredit’s German subsidiary, HVB, attracted much more demand for a €500m tap of a 10 year benchmark on Wednesday than when the bond was originally issued in January. Not only that but it did so at a tighter spread and new issue concession. The strong execution underscores just how much market sentiment has improved.

Covered bonds offer a way for Baltic banks to develop a new seam of long-term standalone wholesale funding. But a successful conclusion to this project will depend on whether investors are convinced there is an effective mechanism for cross-border recognition of assets.

Parliamentary approval of Estonian covered bond legislation opens the way for Luminor Bank to make the first steps towards establishing a pan-Baltic covered bond market, according to the bank’s head of treasury, Max Ehrengren.

Unione di Banche Italiane issued the most heavily subscribed Obbligazioni Bancarie Garantite since January 2013, showing that, despite pricing over 100bp tighter than Italian government bonds, it offered value to some investors. Demand was probably boosted by an improvement in sentiment that followed comments from the European Central Bank suggesting a new stimulus package is in the offing.

The Mortgage Society of Finland has mandated leads for a roadshow with a view to issuing a seven year deal. It follows Volksbank Wien which mandated leads last week and precedes a number of issuers expected to announce mandates after emerging from blackout.

New issue premiums have stabilised at reasonable levels, oversubscription ratios have steadied and secondary flows are more mixed. While a small widening cannot be ruled out, the more constrained supply outlook will keep spreads in check.

The European Central Bank’s liquidity stress test requires banks to report the maximum volume of covered bonds they could issue. This sends the wrong message to issuers who will think it is alright to max out on covered bond issuance, even though it reduces the overcollateralisation (OC) that is there to protect investors.

Vakifbank has found competitive funding with a privately placed covered bond, its second of the year, sold via sole lead manager Credit Suisse, even though the publicly syndicated Turkish covered bond market has been closed for some time.

BPCE and Achmea Hypo managed good price and size outcomes for their covered bonds issued on Wednesday, but the fact they were less well subscribed than recent deals added to the impression that the recent good run has stalled, with spreads now ‘treading water,’ a lead manager conceded.

Caisse Française de Financement Local (Caffil) attracted orders worth €2.6bn from 110 investors for its debut €1bn social covered bond on Tuesday — the first from a French issuer. The deal, which was subscribed in half an hour, was priced flat to Caffil’s curve.