Covered Bonds

New issue premiums have fallen slightly and with many transactions going on to perform well in the secondary market, bankers conclude that primary conditions are receptive. However, with August approaching, investors are more likely to be away from their desks and activity is bound to slow.

It has been mooted for years but investors are finally getting their first taste of covered bonds out of Singapore with the Lion City’s largest bank DBS opening books to a dollar offering on July 29.

Muenchener Hypothekenbank (MuHyp) has priced one of the tightest covered bonds of the year.

Covered bond new issue premiums fell on Tuesday as four borrowers launched deals worth over €2.5bn in total, on collective demand of about €5bn. LBBW’s second deal of the month was priced 1bp tighter than its last bond, even though it was two years longer. Bankia was set to issue at less than half the concession paid by peripheral borrowers last week, while Bank of Montreal and Bank of Nova Scotia were set to price in line with recent Canadian predecessors.

More than 550 people have so far voted in The Cover’s 2015 covered bond awards, and with two weeks to go, there is still everything to fight for. Three banks are clearly in the running for Best Global House.

The Net Stable Funding Ratio (NSFR) proposed by the Basel Committee on Banking Supervision (BCBS) may hamper the development of covered bonds and restrict long term financing, according to a paper published by the European Mortgage Federation (EMF) and European Covered Bond Council (ECBC) on Monday. This is due to the assumption that deposits are a more stable source funding and because unsecured funding is favoured over secured.

The secondary market is no longer a relevant tool for price discovery. Spreads now only reflect the level at which the eurosystem would buy. The primary market is the more relevant price marker, but with concessions rising to as much as 24bp in some deals this week, investors are being alienated and traders are struggling to do their job, said analysts at Barclays.

Germany dominated covered bond supply this week with four banks raising €2.5bn after collecting orders of nearly €6bn in total.

The primary market for peripheral European covered bonds leapt back to life this week after a 12 week hiatus, with investors queuing up to buy a series of deals that emerged in quick succession.

Nationwide Building Society stood out on another busy day in the covered bond market, shaking off three rivals to print a €1bn mortgage backed bond on Thursday in line with Lloyds and Bank of Nova Scotia.

Nationwide stood out on another busy day in the covered bond market, shaking off three euro-market rivals to print a €1bn mortgage backed bond on Thursday in line with Lloyds and BNS.

Little more than a week after its successful initial public offering, the reprivatized Deutsche Pfandbriefbank issued a €500m five year Pfandbrief that was priced closer than ever to its highly regarded peers, LBBW and Helaba. At the same time, WL Bank issued one of the tightest and most oversubscribed Pfandbriefe of the year.