Covered Bonds

The covered bond market has stayed open through August but it could get busier next week as issuers ready themselves for new deals ahead of the European Central Bank’s next meeting in September.

Nykredit Realkredit is looking at the five year part of the curve for a new covered bond offering, following closely behind a €500m short seven year deal from fellow Danish lender BRFkredit this week.

BRFkredit was more than twice subscribed for a €500m short seven year covered bond on Wednesday, in what could be an important deal in kicking off a flurry of issuance at the end of August.

A lack of supply in the summer months has helped to extend an already impressive rally in the bank bond market, leaving cash-rich investors hungry for a wave of new supply.

Germany’s WL Bank left little on the table when selling a 10 year mortgage Pfandbrief on Tuesday, following the example of recent trades from Commerzbank and Münchener Hypothekenbank (MuHyp) and setting a final price very close to fair value.

The practical application of covered bond harmonisation is too challenging to implement and the process may ultimately not amount to much more than an exercise in moral suasion.

Though there is still scope for the financial institutions bond market to start creeping back to life this week, participants think they will have to wait until September before new issuance volumes really start to perk up.

Rabobank’s global head of long term funding, Sjaak-Jan Baars speaks to GlobalCapital about the benefits of covered bond funding, the bank’s expected frequency in the market, the outlook for spreads and prospects for green bonds.

Covered bond ratings newcomer, Capital Intelligence Ratings (CI), has set out its covered bond rating methodology. Its approach uses the same main credit risk elements as the other agencies, but differs markedly in the way that it brings these elements together, and how it sees cover pool quality.

Switzerland’s Valiant Bank is reportedly close to issuing its debut covered bond, with a Swiss franc-denominated issue expected first, possibly followed by a euro benchmark. But the restrictive Swiss covered bond law means the deal will be contractually structured.

Commerzbank attracted as much demand and paid an identical new issue premium for its €750m 10 year covered bond issued on Thursday as Münchener Hypothekenbank (MuHyp) did for its €750m nine year launched a day before. The two transactions show that the summer lull is over and the covered bond market is back in business.

Münchener Hypothekenbank issued a tightly priced nine year Pfandbrief on Wednesday, just as Commerzbank mandated leads for a 10 year. The deals are likely to be followed by others from core Europe and especially from borrowers looking to fund at the long end, where execution risks may rise in the run up to the European Central Bank’s meeting on September 7.