Covered Bonds

Eleven covered bonds were priced in the first week of 2016 despite the onset of European holidays and US non-farm payroll data.

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.

Bank of Nova Scotia issued the third sterling three year floating rate note of the week, paying a slightly wider spread than Nordea and Lloyds. While this led to questions about the depth of the sterling market, bankers said the differential was justified and noted that the final funding outcome was attractive compared to alternative markets.

ABN Amro was set to price a benchmark €1.25bn 10 year euro covered bond on Thursday. The long tenor, a busy market and volatile conditions meant it was not an easy trade to sell. But with the borrower taking a pragmatic approach by paying a generous concession, the final outcome was positive.

La Banque Postale closed a €500m seven year covered bond on Thursday, but bankers away from the deal said the continued influence of ECB purchasing was weighing on investor demand.

DNB Boligkreditt drew over €2bn of orders for its €1.5bn five year covered bond on Thursday, and despite wider volatility the new issue concession was minimal.

Bank of Montreal (BMO) was set to issue a €1.5bn three year covered bond on Thursday after attracting the biggest order book for a Canadian bank in euros in the past year. The borrower’s decision to opt for a short tenor proved the perfect choice in the context of Thursday’s prevailing risk averse and volatile market.

Nordea Eiendomskreditt issued the second sterling three year floating rate covered bond of the year on Wednesday following the earlier success of Lloyds which reopened the market on Tuesday. And after a strong reception for Toronto Dominion’s (TD) euro five year benchmark, Bank of Montreal and DNB Boligkreditt mandated leads for euro denominated transactions to be priced on Thursday.

Caisse Francaise De Financement Local (CAFFIL) raised €1.5bn in the covered bond market on Tuesday with a two tranche public sector-backed deal. The higher yielding €500m 15 year tranche was subscribed, but the €1bn six year was not.

Fitch has published a detailed response to the European Commission’s (EC) consultation on harmonisation of the covered bond market, outlining areas that could provide a material rating benefit in some countries, but adding that a degree of market fragmentation is inherent in the covered bond market.

Landesbank Baden-Württemberg (LBBW) priced a well oversubscribed €750m four year Pfandbrief on Tuesday, paying a minimal new issue concession.

The Toronto-Dominion Bank priced a €1bn five year covered bond on Tuesday, with the issuer able to tighten pricing from initial price thoughts on the back of strong demand for the non-ECB eligible paper.