Covered Bonds

Following its recent roadshow, Deutsche Apotheker- und Ärztebank eG has mandated leads for a €500m no grow Pfandbrief.

Mediobanca issued a smaller than usual deal on Tuesday enabling a higher level of oversubscription than many recent Italian covered bonds with a concession that was towards the lower end of the range.

Yorkshire Building Society offered a chunky premium for its €500m of seven year covered bond on Tuesday. With only a modest oversubscription, it was not able to tighten pricing.

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.

Westpac has mandated leads and opened books for a dollar benchmark covered bond, to be priced on Monday. And in euros, Yorkshire Building Society (YBS) has mandated leads for a €500m no-grow seven year benchmark, to be launched on Tuesday.

A poor third quarter for Commerzbank’s investment banking division and the announced retirement of its chief executive has done little to spoil the bank’s overall sense of momentum, as it posted better profits than had been widely expected and revealed it would pay its first dividend in eight years.

The covered bond primary market is likely to experience an increase in activity next week, with a handful of deals expected. Though conditions are broadly constructive and have improved from two weeks ago, the secondary market still looks precarious suggesting issuers that move early will have an advantage.

Three issuers launched covered bond benchmarks in euros this week, down from nine in the previous week, as borrowers anticipated an improvement in market conditions and lower new issue concessions.

Fitch will soon release an exposure draft focused on its treatment of foreign exchange (FX) risk in covered bond programmes with open FX positions, along with a number of other proposals that seem positive for covered bond ratings.

NordLB Luxembourg Covered Bond Bank issued a €500m three year Lettres de Gage Publiques on Thursday. The deal offered a 24bp premium to where NordLB Germany trades, and therefore attracted a comfortable level of oversubscription despite its lack of compliance with the capital requirements directive (CRD) covered bond definition and its split rating.

Belfius Bank became the first Belgian ABS issuer to return to the public securitization market since 2006 on Wednesday, pricing an €800m RMBS deal. The size, spread and oversubscription ratio was impressive.

Banks may have become safer places to invest, but investors in senior unsecured bank debt have been shunted down capital structure. Senior spreads do not reflect this new credit risk, especially compared with covered bonds not eligible for the covered bond purchase programme (CBPP3).