Covered Bonds

The covered bond primary market was quiet on Thursday as weak credit market conditions prevailed, and with this year’s supply double the amount seen in the same period last year, indigestion has weighed on spreads. Though it is still early days, banks with this year’s largest market shares are quite distinct from those of 2015.

Deutsche Bank’s Spanish subsidiary launched a seven year deal on Wednesday, its second publically syndicated covered bond, but it had to compete for attention with Banco Santander, which decided to bring a new 10 year deal on the same day.

Raiffeisen-Landesbank Steiermark and Bayerische Landesbank issued Austrian and German Pfandbrief, respectively, on Wednesday. The fact that the Austrian deal was only just oversubscribed and the German deal was placed only with domestic investors reflected the pernicious influence of the covered bond purchase programme (CBPP3).

Spanish banks are becoming less reliant on the covered bond market, said Fitch, and as a consequence their balance sheets are becoming less encumbered.

Financial institutions have taken an early plunge into additional tier one bonds this week, as European and US investors show willing to take on risk and put cash to work.

Bank of Nova Scotia (BNS) became the third Canadian issuer to land a euro benchmark this year, launching a €1.5bn three year deal on Tuesday that quickly built momentum despite competing with three other deals for investors’ attention.

Bankia became the first peripheral covered bond issuer this year, offering a five year euro benchmark at a juicy premium to the Spanish sovereign.

Deutsche Bank SA, Kookmin Bank, BayernLB and RLB Steiermark have mandated leads for covered bonds to be issued on Wednesday.

Erste Bank issued the first Austrian Pfandbrief of the year, attracting a comfortably oversubscribed book and setting a strong start for issuers from the beleaguered country. At the same time, Deutsche Pfandbriefbank issued a tightly priced and larger than expected German Pfandbrief.

Deutsche Pfandbriefbank and Erste bank have mandated joint leads for euro denominated covered bond benchmarks to be launched on Tuesday.

Lloyds and Société Générale both returned to the covered bond market to issue their first euro-denominated benchmarks of the year on Monday. The UK bank issued in much larger size with an order book that grew far more quickly than the book for SG’s deal.

All but one of the primary euro denominated covered bonds issued this year, whether they can be bought by the ECB or not, have widened after issue.