Covered Bonds

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.

Bankinter has priced the fourth peripheral covered bond of the week, the longest from a peripheral issuer since mid-April, and the most oversubscribed in the seven year tenor since early March. The evident success removes any lingering doubt over peripheral banks’ access to capital markets following the re-emergence of the Greek debt crisis.

Landesbank Hessen-Thüringen issued a four year mortgage backed Pfandbrief on Wednesday, meeting its targets for size and spread. Bankers were hopeful that more covered bonds would emerge on Thursday, as conditions were good for both core and peripheral names.

Credit Foncier de France is out with its second RMBS of the year. CFHL-2 2015 may not come with the special regulatory treatment of the issuer’s covered bonds, but the deal offers a spread that looks particularly alluring for the risk. A major investor of covered bonds and securitizations said RMBS offer far better risk return than covered bonds, and chastised fellow investors for their lazy approach to assessing credit risk.

Following successful deals from Berlin Hyp on Tuesday and Helaba on Wednesday, two more German issuers have mandated leads. WL Bank and Deutsche Pfandbriefbank (Pbb) are expected to open books on Thursday, respectively for five and seven year benchmarks.

Royal Bank of Canada has opened books for the second US dollar denominated three year floating rate note this year following Westpac’s lead, and Helaba has mandated banks for its second euro denominated benchmark of 2015.

Banca Popolare dell'Emilia Romagna’s (BPER) and Banco Popular Español’s (BPE) five year bonds enjoyed equally good receptions, even though BPER’s Italian covered bond came at half the spread and with a much lower rating than BPE’s Spanish deal.