Covered Bonds

Yorkshire Building Society mandated leads for a roadshow on Wednesday to market a euro denominated benchmark, the issuer’s first in a year. Only two UK borrowers have launched euro benchmarks this year and bankers say a €500m deal with an intermediate maturity should have a good chance of success.

Real money sellers have dominated flows in covered bonds, apart from the very short end where a few bank liquidity buyers were reported on Wednesday. And with Bund yields still at risk of rising beyond their recent highs, a further readjustment in covered bond spreads could be due, bankers and investors told The Cover.

Banco Sabadell was right to approach its possible 10 year covered bond with caution. But if it had been serious about the longer tranche, it would have shown the market a realistic spread.

Michael Weidner, portfolio manager at Lazard Asset Management (Deutschland) GmbH in Frankfurt talks to The Cover about the recent Bund market rout, the rates outlook, what’s in store for covered bonds and how his portfolio has performed.

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.