Covered Bonds

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.

SR Boligkreditt hit the market with the second Norwegian covered bond of the week on Friday, with a five year €500m no-grow deal that offered a premium to Thursday’s successful five year deal from DNB.

The Estonian government is working on a draft law that will allow local banks to issue covered bonds, said the Ministry of Finance.

The Dutch government has urged the European Commission to address the “unbalanced” regulatory treatment of securitization compared to covered bonds, complaining of “disproportionate” incentives to invest in covered bonds versus ABS.

Virgin Money has mandated leads for a new UK prime RMBS deal from its established Gosforth shelf, which will be issued in multiple currencies and will look to attract US investors with a 144A registration.

After surpassing several milestones in 2015, the covered bond market should be set for another record-breaking year in 2016. Bill Thornhill talks to Société Générale CIB’s head of covered bond origination, Ralf Grossmann, and the bank’s senior covered bond research analyst, Cristina Costa, about their predictions and recommendations for the forthcoming year.

Covered bond new issue spreads are wider today than when the European Central Bank began buying for its third purchase programme a year ago. Bill Thornhill examines the causes for this anomaly and considers how the market will look in 2016.

Lloyds issued the first sterling covered bond of the year and was quickly followed by two overseas issuers who priced deals at successively wider levels.

Borrowers who issued covered bonds this week that are eligible for the European Central Bank’s purchase programme (CBPP3) did not receive such a strong reception as those whose bonds were not eligible.