Covered Bonds

Despite mounting evidence of falling Swedish house prices and the likelihood that orders were lost at the re-offer spread, Swedish Covered Bond Corporation (SCBC) issued its tightest covered bond on Monday.

The Swedish Covered Bond Corporation has mandated joint leads for a seven year euro benchmark which is likely to be launched on Monday. The deal will be closely watched to see how it compares with Stadshypotek, which issued a seven year to a lacklustre reception in November.

Alpha Bank has mandated leads for the third publicly syndicated Greek covered bond in three months. But in contrast to the first two deals, it has chosen a longer maturity with a soft bullet structure, instead of a conditional pass through.

Primary covered bond sales have gone smoothly so far this year, with borrowers continuing to pay negligible new issue premiums and still attracting comfortably oversubscribed order books. But look a little closer and its clear there’s been a perceptible change. Investors are fighting back, and beginning to get their way.

It’s hard to fault the support the euro market has offered rates borrowers in the past week. Executions have been smooth, books well-filled and new issue premiums skinny. But, with ever more hawkish signals from the European Central Bank and steepening yield curves, the future does not look so rosy for borrowers. The balance of pricing power seems likely to shift in favour of investors.

Sparebank 1 Boligkreditt has mandated lead managers for a roadshow to market its first green covered bond. The move coincided with proposals from lawmakers in Luxembourg for a green covered bond framework.

NIBC, Raiffeisenlandesbank NiederÖsterreich-Wien (RLB NW) and BayernLB were easily able to sell 10 year covered bonds issued this week, thanks to their small size and European Central Bank demand.

DNB Boligkreditt and Canadian Imperial Bank of Commerce this week issued the first five year covered bonds of the year and found strong demand, even though there was a sensitivity around the final spread.

UK issuers propose to include their covered bond programmes within their ring-fenced entities, which is positive for their credit quality, said Moody’s.

The finance ministry in Luxembourg has published a draft covered bond law to finance renewable energy infrastructure loans. But there could be limited demand to use the framework, and much depends on new European rules coming later this year.

Canadian Imperial Bank of Commerce followed DNB Boligkreditt with the second five year covered bond of the year. The tenor, which appeals to the broadest audience and offers the best execution certainty, should become increasingly popular as tapering of central bank purchases and refinancing of the central bank liquidity takes effect.

DNB Boligkreditt differentiated itself in a crowded covered bond market on Tuesday by issuing the first five year deal of 2018, a strategy that paid off, given it was also the largest deal of the year.