Covered Bonds

WL Bank issued a €500m mortgage backed seven year on Thursday, paying a limited concession with a high level of demand.

A spectacular spectrum of FIG issuers stormed into the bond markets this week as the European Central Bank’s latest round of stimulus squeezed spreads tighter and investors finally caved in to the bulging pipeline of deals. With Easter fast approaching, there is little sign of issuance slowing, writes Tyler Davies.

Three euro benchmarks surfaced on Wednesday including the first from Axa in four years, the first euro benchmark from BRFkredit and a dual tranche deal from Crédit Agricole which, by virtue of its €3.25bn size, is the most notable deal of the year so far. Despite these successes, traders fear the spread tightening run may be close to its end.

There has been €6.5bn of euro FIG supply across most asset classes in the first two sessions this week, with issuers riding a turnaround in sentiment after the European Central Bank announced more monetary stimulus last week.

Concerns over regulation and liquidity mean ABS issuers are turning more to covered bonds this year, though there is hope that 2016 will see an increase in capital relief trades, according to panellists at IMN’s Global Covered Bond conference, held in London on Monday.

Spanish covered bond issuers have been busy updating the valuations of their Cédulas pools and removing ineligible loans which have been structured into RMBS, said Moody’s. The process takes the Spanish covered bond market closer to meeting the European Banking Authority’s best practice guidelines and will stand issuers in good stead for when Spain unveils its new covered bond law.

The Norwegian issuer successfully priced its first covered bond on Tuesday, a day after Moody’s published a report highlighting Norwegian programmes with a high oil related exposure. Meanwhile, Crédit Agricole mandated leads for its first covered bond of the year.

Landesbank Hessen-Thueringen Girozentrale (Helaba) returned to the euro covered bond market on Tuesday for its second deal of the year, as Royal Bank of Canada was set to issue the second deal from a Canadian bank in dollars this year. Bank dealers reported more mixed flows in the secondary market compared to last week but sentiment is still positive.

Crédit Agricole has launched a tender offer for seven series of outstanding covered bonds issued between 2010 and 2013, totalling up to €2bn. The bank has also announced that its subsidiary Credit Agricole Home Loan SFH will seek consent to switch its outstanding covered bonds to a soft bullet structure.

Intesa SanPaolo has captured the strong improvement in peripheral market sentiment with its €1.25bn seven year covered bond issued on Friday which attracted the highest order book of the year. At the same time Sparebanken Sør Boligkreditt has mandated leads for its debut covered bond.

The European Central Bank’s latest raft of stimulus is likely to restrict market-based short term funding and could lower covered bond supply at the short end. But covered bonds are likely to remain the most efficient tool for term funding, said bankers, two of whom confirmed they had heavy pipelines.

After over a month with no Obligations Foncières supply, Caisse Française de Financement Local (Caffil) and Compagnie de Financement Foncier (CFF) returned to the primary covered bond market on Monday.