Covered Bonds

Westpac New Zealand drew strong support for its five year covered bond on Thursday which took advantage of the strong demand and performance identified in ANZ New Zealand’s earlier deal.

Minutes from the European Central Bank’s latest monetary policy meeting reveal that Governing Council members suggested revisiting a scheme allowing banks to access cheap liquidity.

Landesbank Hessen-Thueringen Girozentrale (Helaba)’s decision to issue a rare three year covered bond as part of a two part offering, clearly paid off despite concerns over the lack of yield.

Small benchmark covered bond deals issued on Wednesday by Deutsche Bank’s Spanish subsidiary and UniCredit’s Austrian subsidiary were slow to build and priced in line with initial guidance. This led some to question whether this was due to a degree of unease with their parent groups or whether investors baulked at the pricing process.

Euro covered bonds issued by ANZ New Zealand, Caffil and National Bank of Canada on Tuesday provided “the least worst option” in a spread widening environment, said bankers.

The bond market is well ahead of schedule in its adoption of potential Libor replacements, with several issuers having printed notes linked to the Secured Overnight Financing Rate (Sofr) in the dollar market, and to the Sterling Overnight Index Average (Sonia) in sterling. Borrowers are setting strong standards for other participants to take up, as well as adjusting structures to ensure the eventual market is optimal. That does not mean the job is finished, of course. GlobalCapital spoke to some of the pioneers in the Sonia and Sofr markets about their work so far — and the challenges ahead.

Westpac has issued the first dollar covered bond of the year, and its first in that currency in more than two years. The borrower took advantage of a quiet market to issue a sizeable $2bn five year deal that provided a considerable cost saving to senior unsecured — sending a strong signal to other issuers.

Caffil has mandated joint leads for a two part covered bond which, at the long end, is expected to offer a juicy spread.

Lloyds Bank issued a £750m three year Sonia linked covered bond on Monday, taking advantage of the steepness of the sterling curve to cut the funding cost. But having issued almost £4bn ($5.1bn) in the last 12 months, demand was much less compelling than Nationwide’s recent Sonia debut.

DNB Boligkreditt attracted a comfortably oversubscribed order book for its €1.5bn seven year covered bond on Monday, illustrating the market’s sweet-spots for tenor, name and jurisdiction.

Crédit Agricole managed to reach considerable size expectations and raise €1.5bn of covered bond funding in the challenging 10 year tenor on Monday. Although a tighter price might have been possible on Friday, the issuer’s size ambitions would probably have been thwarted.

Bank of Nova Scotia and BayernLB found good demand for their covered bonds issued in the belly of the curve on Friday, but UniCredit AG (HVB) experienced a more challenging sales process for its 10 year Pfandbrief. Crédit Agricole will be hoping for a better reception when it issues a 10 year next week.