Covered Bonds

A trio of 10 year covered bond deals issued this week showed that interest in this tenor is less uncertain than initially feared. But, in a rising yield environment, investors are likely to become more defensive and this demand risks being short-lived.

Westpac attracted substantial demand for its five year sterling floating rate deal on Thursday, with considerable investor liquidity ensuring a particularly attractive cost of funding.

NordLB issued its largest Pfandbrief since 2011 on Thursday, but the oversubscription ratio was on the low side — despite a relatively attractive new issue concession and a large order from the European Central Bank.

NordLB has mandated joint leads for a 10 year Pfandbrief which some bankers believe will prove an ‘interesting’ trade, reflecting the view that spreads are tight to competing agency paper.

Société Générale issued a tightly priced 10 year French covered bond on Wednesday with the €750m deal size, ensuring a solid level of excess demand and good potential for a stable performance.

Westpac has mandated leads for the third sterling five year floating rate covered bond from a bank outside the UK to be issued this year.

United Overseas Bank in Singapore was able to price a seven year euro covered bond in line with Westpac on Tuesday. Although UOB was unable to match the pricing of DBS Bank, it achieved 'remarkable traction' with second and third tier investors across Europe.

Caffil managed to attract a strong order book for its eight and 15 year covered bonds issued on Tuesday, largely because it paid careful attention to size, starting spread and tenor.

Erste Group attracted solid demand for its 10 year covered bond on Tuesday and, by pricing the transaction with a relatively slim new issue premium, it helped assuage concerns about the appropriateness of this tenor that followed deals issued last week.

The pace of covered bond supply is expected to remain fast on Tuesday, with as many as three issuers mandating lead managers for benchmark deals.

Crédit Agricole SFH took advantage of curve steepness to issue a €1.25bn eight year which, unlike recent 10 year deals, managed to attract strong demand from bank investors buying for their liquidity portfolios.

Unione di Banche Italiane (UBI Banca) wasted little time in following Crédit Agricole Cariparma with the second Italian Obbligazioni Bancarie Garantite of the year. The relatively small sized €500m tranches were just oversubscribed, reflecting the fact they were priced deeply through multiyear treasury bonds (BTPs).