Covered Bonds

The European Bank for Reconstruction and Development has invested in its first Slovak covered bond and is working with local regulators to update the local covered bond law.

Sparebank 1 Boligkreditt and Aareal Bank issued well oversubscribed covered bonds on Wednesday, paying virtually no new issue concession. Both banks took advantage of enduring demand for five year tenors, while for Aareal the issue was cheaper than the European Central Bank’s term liquidity.

After a glut of long-dated covered bonds in 2016, investors are scrambling to bring the duration of their portfolio down again, and that means five year covered bonds are likely to remain a firm favourite. More issuers should turn down the ECB's TLTRO, and try covered bonds instead.

The German real estate lender, Aareal Bank, has mandated leads for a euro-denominated five year German mortgage-backed covered bond.

The French issuer, Axa Bank, has launched a sub benchmark covered bond with a 15 year maturity which closely matches the long dated assets on its balance sheet. This deal is likely to be the last deal under the present structure of its covered bond programme.

Royal Bank of Canada is set to become the first covered bond issuer in Canada to join the Covered Bond Label initiative.

Singaporean issuer DBS Bank is set to close its first euro covered bond, four months after putting the transaction on hold.

Nordea Mortgage Bank (NMB) was set to issue its largest covered bond in three years with a well subscribed order book and a modest concession. At the same time, La Banque Postale returned with its now regular annual covered bond funding.

Core and non-eurozone covered bonds in the short to intermediate part of the curve were well supported on Friday after the European Central Bank said it would buy covered bonds with yield below its deposit floor.

The enduring nature of sterling covered bonds was underscored again this week with deals issued by Lloyds Bank and BayernLB taking this year’s total in the UK currency to six.

Covered bond deals issued this week by Société Générale and Erste Bank showed that there is still good demand for bonds issued by national champions, even in the more difficult longer tenors.

Ten year Pfandbrief €500m deals issued this week by NordLB and Bawag were narrowly oversubscribed even with the support of the Eurosystem.