Covered Bonds

DNB Boligkreditt enjoyed great execution for its €1.5bn seven year covered bond on Thursday, but real money accounts switched out of more expensive deals in good size for the first time in months, suggesting investors have far less inclination to add to positions at prevailing spread levels than was previously the case.

Principality Building Society has picked banks to arrange a roadshow for a new sterling-denominated senior unsecured bond, marking the issuer’s first visit to the market in any currency since before the financial crisis.

Covered bond investors remain unperturbed by spreads to swaps that are at near-historically tight levels, as the relative values to government bonds and senior unsecured remains alluring.

Compagnie de Financement Foncier (CFF) this week issued one of the most oversubscribed French covered bonds in years with demand boosted by the long tenor, small deal size and positive spread. At the same time, SEB found good demand, even though it was issuing the tenth 10 year covered bond since September.

Specialist mortgage bank Muenchener Hypo (MuHyp) and savings bank Sparebanken Vest, which typically fund in covered bonds, are both looking for unsecured funding this week. MuHyp is looking to tap one of its strongly performing senior issues, while Sparebanken Vest is marketing its debut senior unsecured issue in euros.

SpareBank 1 Boligkreditt unearthed solid demand for its first covered bond in sterling, managing to price at the tight end of guidance with a comfortably oversubscribed book, despite issuing in the more challenging five year tenor.

Achmea Bank has mandated leads to market its inaugural conditional passthrough covered bond programme, with the bank eyeing a €500m seven year deal.

Around five borrowers are expected to launch covered bonds next week and take advantage of tight spreads, strong market conditions, an absence of holidays and fewer blackout periods.

A debut green bond from Swedbank this week was the clearest indicator yet that green bonds can price more tightly and outperform the rest of the FIG debt market, including perhaps covered bonds, writes Jasper Cox.

Covered bond supply should start to improve in the next two weeks, with European holidays and blackout periods coming to an end. But it is doubtful that the expected increase in volumes will be sustained for long enough to meet the 2017 annual supply forecasts many analysts made last year.

Covered bond investors have reduced their exposure to peripheral markets according to analysts at Commerzbank research. Despite this, peripheral and higher yielding covered bonds have continued to outperform and could easily remain susceptible to squeezes, traders warn. The technically squeezed status quo may not change until the second half of 2018, they added.

The Slovakian government has approved an updated version of its covered bond law but while this is likely to improve on the existing framework further work may be needed.