Covered Bonds

The primary covered bond market was active this week with as many as seven issuers raising more than €6bn, including the longest deal in over a year and a debut borrower in euros.

Proposed ‘Basel IV’ regulations, which will impose a capital floor that banks must apply to their internal risk models, is counterintuitive and severely challenges the logical link between risk and capital requirements, delegates heard at the European Covered Bond Council’s plenary meeting in Copenhagen on April 23.

Leeds Building Society quickly built a well oversubscribed and broadly distributed transaction for its first euro benchmark covered bond, launched on Thursday. The short tenor, which has largely been displaced by TLTRO funding, provided a strong catalyst for its success.

The Financial Conduct Authority’s study of competition in investment banking has found no need for action over competition in the primary debt markets. However, the regulator said it will closely monitor the use of reciprocity to award mandates, particularly in covered bonds.

Nationwide issued the joint largest sterling covered bond of 2016 on Wednesday, attracting the largest order book of any sterling deal in the year. Leeds said it planned to issue its first euro deal at the short end of the curve on Thursday after finishing its four day, two team roadshow earlier this week.

Eika Boligkreditt and Deutsche Pfandbriefbank (PBB) successfully issued €500m covered bonds respectively in the seven and 19 year tenors on Wednesday. The German transaction was the longest seen for over a year and pays testimony to investors’ appetite for duration.

An improvement in market conditions since Nationale-Nederlanden Bank (NN Bank) was last in the RMBS market didn’t help initial spreads on its privately placed €500m deal come any tighter. As the regulatory treatment of ABS has failed to make progress, the issuer could be tempted to follow its Dutch peers and set up a conditional pass through (CPT) covered bond programme.

The Norwegian lender has mandated leads for the seventh Norwegian euro benchmark to be issued this year and the fourth with a seven year maturity.

Bank of Montreal (BMO) issued a €1.5bn five year covered bond on Wednesday, and despite the deal’s large size, it paid a modest new issue concession with an overall cost of funding that was lower than recent Scandinavian deals. The deal followed Canadian Imperial bank of Commerce (CIBC) which issued the first Australian dollar covered bond of 2016.

Covered bonds issued by DNB Boligreditt and Muenchener Hypothekenbank (MuHyp) on Monday priced with minimal new issue concessions and showed that market conditions were strong. At the same time Canadian Imperial Bank of Commerce (CIBC) opened books for the first Australian dollar covered bond this year.

Daiwa Capital Markets has hired Jez Walsh as co-head of London syndicate, alongside Kevin O'Neill.

Daiwa Capital Markets has hired Jez Walsh as co-head of London syndicate, alongside Kevin O'Neill.