Covered Bonds

UniCredit Bank Austria (Baca) returned to the covered bond market on Tuesday to issue the first Austrian Pfandbrief since the country’s Financial Markets Authority (FMA) announced a debt moratorium on bonds issued by Heta Asset Resolution AG (HAR).

Covered bonds proved their worth this week as, despite difficult market conditions, 10 borrowers were able to collectively raise more than €8bn at levels that looked attractive compared to senior unsecured financials.

The brisk pace of euro covered bond supply, which has amounted to €11.5bn since the end of August, is expected to slow next week as participants head to Barcelona for the annual Euromoney conference and The Cover awards. However, as the market is open, deals will emerge soon afterwards, which will probably include new names and new programmes from existing names.

Bayerische Landesbank (BayernLB) issued the third 10 year covered bond of the week on Thursday precisely matching Commerzbank in size and spread. With the European Central Bank expected to maintain an accommodative bias at this afternoon’s press conference and global deflationary forces back in play, duration could be back in vogue.

Activity in the covered bond primary market continued at a brisk pace on Wednesday as RBC, DG Hyp, Caffil and Erste Bank priced transactions, taking the deal count this week to 10. Despite mixed receptions, issuers have been able to raise over €7bn, with over €3bn issued on Wednesday, and at levels that look attractive compared to senior unsecured financials.

The European Banking Authority said it has been asked by the European Commission to conduct further analysis on the Net Stable Funding Requirement (NSFR) and Leverage Ratio. The European Covered Bond Council had previously stated the NSFR proposal was unhelpful to the covered bond industry.

Bayerische Landesbank has mandated leads for a euro denominated public sector backed covered bond that is likely to be launched on Thursday.

The Swedish central bank (Riksbank) met on Wednesday amid speculation that it would announce an extension of its sovereign bond purchase programme to Swedish covered bonds, say analysts at Société Générale.

Commonwealth Bank of Australia (CBA) has published a consent solicitation to convert seven hard bullet covered bonds to soft bullets. The Australian issuer follows a handful of other borrowers that have undertaken similar exercises and comes amid speculation that Stadshypotek could be poised to follow.

Royal Bank of Canada has mandated joint leads for its second euro benchmark covered bond of the year.

Santander was set to issue a €1bn seven year deal on Tuesday which offered less new issue concession than competing deals. With a low oversubscription level, rival bankers suggested investors may be able to pick up bonds more cheaply in the secondary market.

Compagnie de Financement Fonciere returned to the covered bond market on Tuesday with a €1.5bn seven year. Its fourth transaction of the year was the least oversubscribed of any it has launched since February 2012.