Covered Bonds

Demand for a new Credit Agricole €500m public sector seven year covered bond this week was weak, but bankers are confident that sentiment is set to remain broadly constructive.

Environmental, social and governance investors have done a fine job of making their approach accepted and now mainstream in a money-driven industry. Along the way, they started saying it was all pragmatic, not about principles. That was a fiction, and under the pressure of climate change, it is being replaced with a more rounded philosophy. Jon Hay reports.

Markets are not prepared for climate change, which is expected to have severe economic consequences. Event risk, leading to credit risk and political action, will spur dramatic change, that could create a new low carbon economy. Climate change mitigation will eventually come to bear on all aspects of society, in the form of regulatory and fiscal incentives and disincentives. Having a green and sustainable action plan is therefore likely to become core to the strategy of every financial institution.

DZ Hyp has mandated leads for a non-deal roadshow, RLB Vorarlberg has mandated leads to roadshow its first covered bond, and ASB Finance has also appointed leads for a series of investor meetings.

Hyp Noe’s tightly priced €500m Aa1 rated seven year covered bond issued on Tuesday was thinly oversubscribed, in contrast to a similar sized triple-A rated six year from BayernLB which found greater demand despite being priced tighter and with a smaller concession.

The European Parliament has set out its version of the proposed European Covered Bond Directive, taking an alternative route to the European Commission’s plan and proposing a ‘premium’ covered bond category.

Intesa Sanpaolo issued a €1bn senior bond on Thursday as it looked to get ahead of other banks, while its main competitor, UniCredit, considers doing more this year.

On Thursday Berlin Hyp became the third German covered bond issuer to come to the market in three days after Deutsche Pfandbriefbank and Aareal Bank earlier in the week. It tapped its self-styled Jubilee bond.

Raiffeisenlandesbank Niederösterreich-Wien (RLB NÖ-Wien) was able to whittle down the new issue concession for its 8 year covered bond on Wednesday, but demand was weaker than for Tuesday’s two trades.

Eika Boligkreditt was more than twice subscribed for its no-grow deal on Tuesday, offering German investors a decent pick-up over both Bunds and Aareal Bank, which also came to the market.

Raiffeisenlandesbank Niederoesterreich-Wien (RLB NÖ-Wien) announced a mandate for a new trade on Tuesday, hoping that the rare product type and a fixed deal size will attract investors.

Eika Boligkreditt and Aareal Bank are expected to reopen the covered bond market on Tuesday, after announcing post-summer holiday mandates on Monday. Both are looking to complete seven year deals.