Covered Bonds

Four Pfandbriefe got traction this week but the limelight was stolen by Commerzbank which issued its fourth covered bond of the year, its largest in four years and its first with a five year tenor since 2015.

Cajamar Caja Rural found good demand for a €500m five year Cédulas on Thursday, suggesting that investors are differentiating between Spanish and Italian bank risk, and with a further spread widening anticipated, peripheral issuers have every incentive to consider follow-on deals.

DG Hyp is set to become the fourth Pfandbrief issuer this week and has mandated leads for a €500m nine year mortgage-backed deal.

Commerzbank returned to the covered bond market for the fourth time this year to issue its first five year Pfandbrief since 2015, and the largest in almost four years. At the same time, Stadtsparkasse Muenchen issued a sub-benchmark Pfandbrief and Nordea Eiendomskreditt was set to issue a small five year sterling floater.

Spanish regulators are likely to introduce a wide range of essential revisions to the Cédulas law once the final version of the European Commission’s covered bond directive has been published. If carefully calibrated, the changes can be credit neutral. The biggest challenge is their implementation.

Jonas Klink, who has left Santander covered bond trading in Madrid, will join Barclays.

Hamburger Sparkasse (HASPA) paid a small new issue premium for its five year Pfandbrief on Tuesday, and will be followed on Wednesday with more German covered bonds in the belly of the curve from Commerzbank and Stadtsparkasse München. Despite the ease of five year execution, some bankers believe the 10 year is also open — and could soon be supplied by a fourth German issuer.

Hamburg Sparkasse has appointed leads for a five year Pfandbrief. The mandate announcement has emerged as dealers report switching interest in Belgian covered bonds.

Bank of New Zealand is looking to issue either senior unsecured or covered bonds in euros, as it keeps its funding options open amid volatile trading conditions in European markets.

Perceived Italian political risk may have started to decline for now, but with volatility certain to return, the covered bond market is one of the safest places to be invested in. GlobalCapital interviewed a major covered bond asset manager for his view on the market in the wake of this week’s extraordinary events.

Royal Bank of Canada followed Toronto Dominion into the sterling covered bond market this week, pricing its first deal of the year at the same spread as its peer. Given a relatively high number of covered bond redemptions this year, RBC could well return.

Toronto Dominion Bank issued the only two covered bond benchmarks in what was otherwise a desolate week for the FIG sector. Despite exceptionally volatile market conditions, the euro and sterling transactions went well leading a syndicate banker to conclude that TD "owns" the covered bond market.