Covered Bonds

After mandating leads on Monday, market participants expected Bank of Queensland’s (BoQ) debut covered bond would emerge on Tuesday. The deal’s absence from a quiet market led to speculation of a minor teething problem with leads confirming the deal is still being being worked on.

Leads Building Society extended its covered bond curve by four years on Monday with a €500m seven year covered bond that was priced with little new issue premium. The transaction is expected to be followed by Bank of Queensland’s first covered bond.

The European Parliament’s economic and monetary affairs committee (Econ) has voted on an own-initiative report on covered bond harmonisation and outlined a three tier approach to the asset class. The committee proposing distinguishing between premium covered bonds (PCBs), ordinary covered bonds (OCBs) and European Secured Notes (ESNs). The new categorisations are supposed to prevent regulatory cliff effects.

Amalgamation of the German covered bond sector looks set to endure as Berlin Hypothekenbank (Berlin Hyp) will potentially subsume Deutsche Hypothkenbank, a subsidiary of NordLB which it is considering selling. In a separate development, the cover pools of Westdeutsche ImmobilienBank (WestImmo) will be fused with those of Aareal Bank.

Covered bond investors have begun to push back on aggressively priced deals, and with spreads close to the tightest in a decade there is a growing belief that they will widen.

Bank of New Zealand (BNZ) issued an oversubscribed €750m seven year covered bond this week, meeting its size and spread ambitions despite concerns about the outlook for spreads.

The Mortgage Society of Finland's deal on Tuesday was not among them however, coming as it did with a a wider spread than usual.

Kommunalkredit, which recently had its public sector covered bonds rated A with S&P, has received positive investor feedback whilst marketing its social covered bond this week.

Aegon Bank returned to the market on Tuesday to issue its first and probably only covered bond deal of the year. Despite the more challenging conditional pass through 10 year maturity, the transaction attracted a much deeper well of demand than a competing six year bullet maturity offered by UniCredit’s German subsidiary, HVB.

Aegon Bank has mandated leads for a €500m no-grow conditional pass-through covered bond and UniCredit's German subsidiary has appointed leads for a six year Pfandbrief.

Sparebank 1 Boligkreditt found solid demand for its €1bn seven year on Monday, even though the transaction vied for investors’ attention with another deal in the same maturity.

Crédit Agricole SFH seized an opportunity to issue its fifth covered bond benchmark of the year on Monday and, by pricing flat to its curve, it showed there was little reason to wait for better execution conditions this year.