Covered Bonds

OP Mortgage Bank raised €1bn of seven year funding in the covered bond market on Thursday and paid only 1bp more than Nordea’s recent seven year. However, with a €1.2bn order book, it was the least subscribed Finnish covered bond of the year suggesting the tenor has lost some appeal.

Covered bond deals issued in the five to seven year part of the curve on Wednesday by ING Belgium, Berlin Hyp (BHH) and The Fédération des caisses Desjardins du Québec (FCDQ) were all well received and stood in stark contrast to a 10 year from Nationwide.

Aktia Bank attracted strong demand for its tightly priced covered bond on Tuesday, the issuer’s first since March 2015, and the first from its restructured mortgage business.

ING Belgium has mandated leads for its first covered bond deal since September 2015 and, after being 150 years in operation, Berlin Hyp has announced plans for a ‘jubilee’ transaction in the form of a mortgage backed five year.

The covered bond primary market picked up sharply on Tuesday, with three core European issuers launching deals across a range of tenors, while another announced a mandate.

The widening spread impact of lower European Central Bank covered bond purchases has been a key focal point for the market for most of this year but, given much greater rates volatility, duration has a more important role to play, according to one major covered bond investor.

Commerzbank’s decision to issue a Pfandbrief on the last day of the week strongly implies that supply is going to get much brisker over the next, holiday-shortened week. Its decision paid off, but it clearly questions the longevity of enthusiastic covered bond demand.

Landshypotek Bank was able to close the price gap to its larger Swedish peers on Wednesday when it issued its first green covered bond.

Nordea issued a €1bn seven year bond on Thursday and attracted the highest subscription ratio of any euro covered bond of this size in 2018, while pricing with a tiny new issue premium. The execution offers further evidence that covered bonds are on a solid footing, in contrast with other sectors.

Deutsche Pfandbriefbank (PBB), which completed its second euro benchmark Pfandbrief of the year this week, is expected to consider issuance in dollars or sterling, as are other German issuers that have big foreign currency assets.

If the principles-based European covered bond directive is implemented in its current draft form not a lot will change — but that may be just as well.

Deutsche Pfandbriefbank (PBB) priced an Aa1 rated six year Pfandbrief on Tuesday at the same spread as Deutsche Bank’s Aaa rated five year issued last week, showing the market has improved. But, with tighter monetary policy recently signalled and more supply due, the advantageous funding window may prove short lived.