Covered Bonds

DG Hyp priced the tightest and most oversubscribed German 10 year covered bond of the year on Wednesday. The strong result pays testimony to constructive covered bond sentiment which is being driven by prospective supply scarcity and relative value to government bonds.

Philip Bennett, chief operating officer at the European Bank for Reconstruction and Development (EBRD), said that 2016 was “finally” the year that progress would be seen in the nascent central and eastern European covered bond market.

Deutsche Hypo was set to price a larger than usual Pfandbrief on Tuesday, and despite paying a paltry new issue concession, the transaction look sets to be one of the most oversubscribed German deals of this size in 2016.

Deutsche Hypo mandated leads for an Aa1-rated euro-denominated eight year, only the second German covered bond in that tenor this year.

Covered bond issuers that have yet to execute strategic funding plans for the first half of this year are expected to issue soon, especially those emerging from blackout.

Covered bond spreads are set to head tighter, though the risk of a repricing has kept real money investors more focussed on non-Eurozone bonds. Peripheral markets are considered most vulnerable to a repricing but still offer tremendous value against the corporate sector.

Crédit Mutuel Arkéa (CMA) is demanding to be split from its parent group, Conféderation Nationale du Crédit Mutuel (CNCM). Despite a likely downgrade of its senior ratings, the covered bond ratings are well protected, said analysts at LBBW. And in the present market environment, spreads are unlikely to be affected, said bankers.

The European Central Bank's Targeted Longer-Term Refinancing Operation (TLTRO) is unlikely to affect covered bond supply by much this year, as the all-in cost of covered bond funding is likely to be cheaper for many issuers, say Crédit Agricole analysts.

LBBW, OP Mortgage Bank and Mortgage Bank of Finland took little time to sell their benchmark euro deals this week.

The Targeted Long Term Refinancing Operation had been expected to lower primary activity, and though it seems likely peripheral supply will be hit, the overall level this year is expected to be only marginally less than originally expected, said Crédit Agricole covered bond research analysts.

Stadshypotek’s newly set up third cover pool, which can be secured by Finnish residential and public sector loans, has been rated Aaa by Moody’s.

After getting agreement to switch the maturity structure of six deals, the French bank received the consent of noteholders to switch the maturity of a seventh covered bond from hard to soft bullet at an adjourned meeting this week.