Covered Bonds

Covered bond investors could not get enough of Swedish seven year deals issued this week by Swedbank and Skandinaviska Enskilda Banken. But whether record order books are being inflated remains a moot point.

Bayerische Landesbank (BayernLB) and Aareal Bank found strong demand for their Pfandbrief this week. Despite pricing tightly to mid-swaps the deals offered a generous pick-up to Bunds, which ensured broad based interest.

Skandinaviska Enskilda Banken followed Swedbank with a seven year deal, printing a well oversubscribed €1.25bn covered bond on Thursday flat to its curve. The deal comes as Citi research suggested excess demand for covered bonds issued this month is at a record level.

Rabobank, Sparebank 1 Boligkreditt and Société Générale issued most highly rated deals this January and BNP Paribas has, on average, worked on the most highly rated deals so far this year according to GlobalCapital's BondMarker.

The covered bond market looked well supported on Wednesday as Sparebank Soer Boligkreditt issued the most highly oversubscribed deal of the year, which was priced flat to its curve. With all new issues tightening bankers are hopeful that Italian and Greek supply could soon follow.

Sparebank Soer Boligkreditt has mandated leads for a covered bond and taken advantage of demand identified in the previous three Norwegian deals issued so far this year.

After a string of very successful 10 year covered bond trades, it was clear that seven and five year deals would “fly like hell,” said a syndicate manager on one of the deals issued on Tuesday by Swedbank and Aareal Bank.

BayernLB launched a 10 year Pfandbrief on Monday in line with where DZ Hyp’s recent 10 year was trading, setting the market up nicely for Aareal Bank, which has also announced issuance plans. Despite record supply last week, spreads are tighter across the board, possibly reflecting the view that volumes are set to slow as issuers head into blackout.

The covered bond market remained in fine fettle on Friday as Eika Boligkreditt found strong demand for the seventh 10 year of the week and Helaba issued a benchmark-sized tap of an old 10 year. At the same time BayernLB picked leads for another 10 year and Cafill mandated for its first social covered bond.

Investors are returning to the covered bond, sovereign and supranational agency (SSA) markets in their droves. Despite exceptionally heavy issuance, the startling breadth and depth of demand seen in many deals this week caught market participants off guard — not least the investors themselves. Bill Thornhill reports.

PKO Bank Hipoteczny (PKO), Deutsche Pfandbriefbank (PBB) and Raiffeisenlandesbank NiederÖsterreich-Wien (RLB-NW) all found strong demand for their €500m covered bond deals this week.

Fearful of missing out and in the absence of competing credit supply, investors piled into higher yielding covered bonds offered by Canadian, Australian and Swedish issuers this week. A negative new issue premium Royal Bank of Canada’s five year epitomised the state of investor frenzy.