Covered Bonds

United Overseas Bank has mandated joint leads for a covered bond roadshow in the UK with a view to potentially issuing its sterling debut. Singapore peer DBS Bank undertook a roadshow in the UK two years ago but did not follow up with a deal.

Covered bond investors are setting more conditions on their orders, joining order books later, and limiting tenors they will buy, anxious to avoid buying bonds that will underperform. Despite the picky investor base, Swedbank still raised a €1bn five year at a record tight spread.

In the absence of primary activity, the European Central Bank maintained its strong presence in the covered bond market over the last week by stepping up secondary purchases. At the same time, investors have avoided punitive negative yields by buying three year non-Eurozone bonds.

Deutsche Bank avoided senior unsecured and subordinated bond markets, where its paper has widened considerably, to raise €500m of seven year covered bond funding on Wednesday. The bank paid virtually no new issue premium.

Borrowers have returned to the FIG primary market, but investors are hoping for greater new issue premiums.

Sparebanken Sør Boligkreditt came to the market on Tuesday with a five year covered bond, as market participants suggested that new issue premiums could start to rise.

Sparebanken Sør Boligkreditt has mandated joint leads for a new euro covered bond, the second five year transaction from a investment grade European issuer this year.

LBBW has promoted Thomas Meißner to be its new head of strategy. Alexandra Schadow takes over from Meißner as head of cross-asset research.

Even though the ECB's net asset purchases were halved to €30bn from January, the pace of covered bond buying did not change. Though the absence of a lengthy tapering period implies a greater cliff-edge effect when net purchases inevitably fall to zero, bankers were relatively sanguine on the spread outlook.

Fitch has warned in a report that there is no certainty that covered bonds will retain their large overcollateralization buffers (OC) during the course of their life, in the absence of a contractual commitment.

Investors showed their preference for additional tier one (AT1) deals with a short time until their first call dates this week, as they looked to reassess the sector’s value amid a bout of volatility.

Demand for a deal can be accurately reflected only in the context of a specific spread. Anything other than that can mislead investors, so the ECB should demand better.