Covered Bonds

SEB mandated leads and opened books for the fourth sterling denominated covered bond from a Swedish issuer this year, a three year floating rate note. At the same time, Korea Housing Finance Corp (KHFC) opened books for a fixed rate five year dollar benchmark, and its first legally enshrined covered bond.

HSH Nordbank issued a €500m five year mortgage Pfandbrief on Thursday. Despite offering an attractive new issue premium and a rare Pfandbrief spread over mid-swaps, leads struggled to fill the order book, with the structural upheaval facing the issuer compounding difficult market conditions.

European benchmark issuance is expected to rise in 2016 led by German banks, which have seen double digit growth in mortgage lending this year, say analysts at Commerzbank. The next largest regional supply is expected from issuers in France, then Spain followed by Canada, say analysts at Société Générale.

Deutsche Hypo priced a €500m six year on Wednesday in line with previous German deals, but with a considerably smaller oversubscription ratio than its previous two issues. Bankers were not hopeful the outlook for covered bonds would improve much in the next few months, but took heart from the fact that most investors are obliged to put their money to work.

Barclays has become the first bank to publish the approval and quorum results of its recent consent solicitation. A high proportion of investors voted in favour of switching four covered bond maturities from hard to soft bullets.

BBVA returned to the covered bond market for the second time this year on Tuesday, opening books for a long five year. Despite pricing well inside Spanish government Bonos, and even though political instability was causing ructions in neighbouring Portugal, the national champion quickly built an order book unequaled in size in the Cédulas market for nearly four months.

Commonwealth Bank of Australia published a consent solicitation requesting a change in the maturity structure of a six covered bonds, for which it offers no fee. The announcement comes a few weeks after it got approval to switch the maturity of seven other covered bonds.

National Bank of Australia issued a €750m seven year covered bond on Monday. The deal didn’t fly off the shelf, even though it offered a substantial premium to other bonds. The lack of ECB repo eligibility and slackening demand in the intermediate part of the curve was blamed.

Romania has passed primary covered bond legislation which meets the EBA’s best practice requirements, and does not subordinate swap counterparties to covered bond investors.

The secondary market has been busier this week, with real money investors taking advantage of a cheapening in covered bonds relative to government bonds. With the ECB likely to step up purchases in the secondary market and government bonds, the outlook for the remainder of the year should be broadly supportive.

Covered bonds benchmark issuance could grow to as much as €180bn globally next year according to Crédit Agricole research. The main growth is likely to be seen in euro benchmarks where the analysts expect €150bn.

Aegon Bank, the subsidiary of the Dutch globally systemically important insurer Aegon, has set up a €5bn conditional pass through (CPT) covered bond programme that is registered with the Dutch central bank. A triple A-rated transaction is expected this year.