Covered Bonds

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.

Though there is still scope for the financial institutions bond market to start creeping back to life this week, participants think they will have to wait until September before new issuance volumes really start to perk up.

Rabobank’s global head of long term funding, Sjaak-Jan Baars speaks to GlobalCapital about the benefits of covered bond funding, the bank’s expected frequency in the market, the outlook for spreads and prospects for green bonds.

Covered bond ratings newcomer, Capital Intelligence Ratings (CI), has set out its covered bond rating methodology. Its approach uses the same main credit risk elements as the other agencies, but differs markedly in the way that it brings these elements together, and how it sees cover pool quality.

Switzerland’s Valiant Bank is reportedly close to issuing its debut covered bond, with a Swiss franc-denominated issue expected first, possibly followed by a euro benchmark. But the restrictive Swiss covered bond law means the deal will be contractually structured.