Covered Bonds

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.

Deutsche Bank is set to go on the road and market its first Cédulas Hipotecarias while DBS Bank of Singapore is set to market the first Asian covered bond in sterling

Six borrowers raised nearly €5bn in the covered bond market this week, once again surpassing supply expectations. The star attraction, notable for both its size and tenor, was a €1.5bn three year from the Norwegian issuer, Sparebank 1 Boligkreditt.

The Norwegian issuer surprised the markets with a rare three year on Wednesday. The deal was one of the largest issued in euros this year and attracted an exceptionally high quality order book, though the oversubscription ratio was less convincing.

TSB's UK prime RMBS programme made a solid start on Wednesday afternoon, as the bank placed a debut £537m-equivalent deal in sterling and euros. The issuer retained over two thirds of the sterling tranche despite offering a decent spread pick-up, but the euro tranche priced strongly.

Deutsche Apotheker- und Ärztebank, or apoBank, received a strong endorsement from investors for its first benchmark Pfandbrief in more than seven years.

A comparison of existing European covered bond laws suggests German credit quality will be hit hardest if Europe adopts a single covered bond framework. The European Commission has proposed a Pan-European covered bond law, prompting Moody’s to release the study this week.

Development Bank of Singapore has announced that it will go on the road to market a sterling-denominated covered bond. The bank would be the first Asian issuer to sell a deal of this kind.

Caixabank, Spain’s largest retail bank, priced a €1bn five year deal on Wednesday, attracting investors with a generous new issue premium. The transaction attracted the broadest and deepest distribution of any Spanish deal since July.

Market sentiment improved towards the back of last week when some pipelined deals burst into the market, and that sentiment has continued to improve in the early throes of this week.