Covered Bonds

Muenchener Hypothekenbank returned to covered bonds for the second time this year to fill out its curve with an eight year deal. The bond size was increased following strong demand, partly driven by the recent rise in Bund yields.

Henrik Stille, covered bond portfolio manager at Nordea Investment Management in Copenhagen talks to The Cover about the fixed income rout, the rates outlook, what it means for covered bonds and how he managed to beat the index and deliver a solid return.

Muenchener Hypothekenbank announced an eight year Pfandbrief on Monday afternoon but with several data points and public holidays this week, few others are likely to follow in euros. In addition, a shaky trade by Banco Sabadell on Friday has done little to instil confidence in peripheral issuers.

Muenchener Hypothekenbank has mandated banks for an eight year mortgage bond, its second Pfandbrief this year.

The Pfandbrief market has been hit hard by the European Central Bank’s third covered bond purchase programme, which began in October 2014. Central banks have gone from taking around 14% of newly minted Pfandbriefe before CBBP3 to around 33% of such deals now, according to Thorsten Euler, a Pfandbrief analyst at DZ Bank.

Arnaud-Guilhem Lamy, a covered bond portfolio manager with BNP Paribas Asset Management in Paris, speaks to The Cover about the cause of the recent Bund rout, whether it was a correction or change in trend, and whether peripheral covered bonds can still tighten relative to the core.

Banco Sabadell ended a month long drought of periphery issuance on Friday by only just managing to print a €750m five year covered bond. A mooted 10 year never appeared.

Two German savings banks priced €500m covered bonds this week, ending a three week supply drought. But the real test is yet to come.

Ratings are getting complicated, as agencies struggle to reflect regulatory changes to bank capital structures. But sometimes being simple and predictable is best.

Banco Sabadell mandated leads for a five year Cédulas Hipotecarias on Thursday and said it is exploring the possibility of a 10 year. Ambiguity over whether a long dated tranche will emerge or not reflects the view that indicative pricing on the longer bond looks ambitious.

DG Hyp printed the second German Pfandbrief of this week on Thursday, proving the market is very much open to German borrowers. But the success of the deal does not guarantee an easy reception for Banco de Sabadell, the first peripheral name to mandate since Bank of Ireland on April 29.

Sparkasse KölnBonn broke the three week supply drought with its €500m seven year Pfandbrief on Wednesday. The deal was an undoubted success and bodes well for further issuance, but negative headline risk and the fear of volatility means issuers should take a cautious approach to pricing – as demonstrated in the senior unsecured market