Covered Bonds

The primary market was quiet on Wednesday, but activity looks set to improve as a trio of issuers from Poland and Germany mandated joint lead managers for benchmark covered bonds — to be issued in euros and sterling on Thursday.

The European Covered Bond Council (ECBC) and Association of German Pfandbrief Banks (VDP) have given a guarded welcome to the European Commission’s proposed covered bond directive, but analysts have raised a number of questions.

The preference share market has plummeted in value after Aviva told investors it might seek to cancel its instruments at par.

The eagerly awaited European 'Covered Bond Directive' was supposed to ring-fence the quality of covered bonds by clearly defining the assets that are eligible for the cover pool. But the proposal risks diluting the quality of the product.

Landesbank Hessen-Thüringen (Helaba) has returned to the Pfandbrief market for the second time this year to issue a dual tranche offering, with the shorter five year part pricing 3bp wider than a six year launched a few weeks ago.

Bayerische Landesbank (BayernLB) issued a €500m seven year in line with recent German Pfandbrief this week, but with a generous pick-up of 5bp compared with its own more illiquid curve.

The European Commission’s proposals for a principles-based covered bond directive have been broadly welcomed, but the lack of detail on assets that might be eligible for covered bonds has caused concern.

Vakifbank has privately placed its third Turkish lira denominated covered bond to international investment banks. The deals, which provided competitive long-term funding and came in response to onerous swaps market regulation, are likely to be mimicked by Turkey’s other main lenders.

Deutsche Pfandbriefbank’s (PBB) decision to issue a five year covered bond this week, instead of the more usual staple of seven or eight year deals, meant it was able to issue in a larger than normal size and pay little new issue premium.

Oversea-Chinese Banking Corp issued a five year sterling floating rate bond on Wednesday but was unable to match the size or spread of United Overseas Bank, which recently issued the first Singaporean covered bond in sterling.

Bank of Ireland enjoyed strong demand for its first covered bond issue for over two years on Wednesday, pricing the deal at its tightest spread over the French covered bond market since the sovereign credit crisis.

Rising uncertainty around the global macroeconomic outlook has been feeding into the financial institutions bond market in recent weeks, pushing new issue premiums higher and forcing investors to become more selective about the bonds they invest in.