Covered Bonds

Deutsche Pfandbriefbank (PBB) eschewed cheap four year financing provided by the European Central Bank (ECB) under its long term refinancing facility to issue a 4.5 year Pfandbrief on Wednesday. The short and rarely issued tenor was easily absorbed and offered almost 52bp more than Bunds, in contrast to a French covered bond issued on Tuesday.

After a fantastic start to the year the FIG market has remained accommodative to borrowers and trades of all shapes and sizes, with a natural slowdown during blackout periods helping to quell any signs of indigestion.

Fondo de Amortización del Déficit Eléctrico (FADE) was warmly welcomed by capital markets on Tuesday for its first benchmark in 18 months, while Asian Development Bank hit screens looking for its first syndicated euro deal in almost three years. HSH Finanzfonds also raised cash on Tuesday.

Crédit Mutuel CIC on Tuesday became the first French covered bond borrower to begin and finish pricing at a spread that was markedly through OATs in this part of the curve, but the deal was a smaller size than expected.

Some €26bn was issued in euro covered bonds in January, about 20% of 2017’s expected annual supply. That proportion is consistent with 2016, and suggests February and March will also be busy.

This week’s three piece covered bond issue from Crédit Agricole showed considerable demand for long dated covered bonds. Though rates volatility and relative value may have deterred some investors, the high outright yield was simply too attractive for many to ignore.

Renewed appetite in the long end of the curve allowed Crédit Agricole Home Loan SFH to add a rare benchmark 20 year covered bond to an offering of eight and 15 year notes on Wednesday, as the French lender walked away with a healthy €2.5bn of funding.

FIG investors can expect the first round of post-earnings announcement deals in forthcoming sessions, though they have not been left wanting even at the height of blackout season.

Dealers are already running low on covered bond inventory and with this year’s first rush of new issues now done, a squeeze is already starting to get underway.

Crédit Agricole has mandated leads for a possible eight and 15 year covered bond which is likely to be launched on Wednesday.

LBBW has priced the largest Pfandbrief in dollars since October 2013 with a comfortably oversubscribed order book, one of the most granular in years for a German covered bond in dollars.

Spanish and French covered bonds were well supported on Monday with further buying reported following demand seen last week. With only one Spanish Cédulas seen so far this year, the market should be receptive to more supply.