Covered Bonds

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Supply-starved investors have been quick to get involved in the first senior bond transactions in euros in nearly a month, with banks leaping back into the market this week following the summer holidays.

Canadian Imperial Bank of Commerce (CIBC) could sell two tranches of long three year covered bonds in Australian dollars this week, as foreign issuers monitor the cash-rich market for opportunities to fund themselves at competitive levels.

Italy’s Banco di Desio e della Brianza picked banks on Tuesday to arrange the sale of its first euro covered bond, in a deal that could kickstart issuance from the European periphery following the summer break.

Deutsche Pfandbriefbank and Berlin Hyp found different fortunes selling mortgage-backed Pfandbriefe in the belly of the maturity curve on Tuesday, as covered bond issuance looked ready to take off following the summer break.

Writing in its European Covered Bond Fact Book for 2017, the European Covered Bond Council said that when banks turn their attention to funding for liquidity purposes they could favour senior preferred debt over 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.