Covered Bonds

Deutsche Pfandbriefbank (pbb), the German Pfandbriefe issuer that will be privatised this year, said it expects to make a first quarter profit of €45m, even after writing down 50% of its exposure to Heta Asset Resolution.

Covered bond supply surged this week with investors piling into deals that offered little new issue concession and negative spreads, leading to concern that an inflection point was at hand. However, there was no sign of investor pushback, with the tightest deals from core European issuers experiencing a high level of demand. But some bankers were left wondering just how long the superb conditions would last.

Covered bond yields and spreads are spiralling lower and the prospect that wafer thin margins become even tighter has led to a legitimate concern that a turning point may follow. But with the European Central Bank backstopping everything, and the market still offering a decent return compared to Bunds, covered bond investors should be lining up to buy for some time yet.

French covered bond regulations that improve transparency on asset liability mismatches and liquidity tests will not be made public, but they should improve supervisory oversight and lower refinancing risk for investors, said Moody’s on Friday.

Toronto-Dominion Bank smoothly executed the sixth seven year euro covered bond this week despite a Bloomberg blackout delaying the process. The larger than usual €1.25bn deal offered a decent new issue premium and attracted comfortably oversubscribed book.

Covered bond yields and spreads are spiralling lower. The prospect that wafer thin margins grow thinner has led to a legitimate concern that a turning point in investor tolerance may follow.

Covered bond supply surged this week with investors piling into deals that offered little new issue concession and negative spreads, leading to concern that an inflection point was at hand.

BayernLB printed the fourth German dollar covered bond of 2015 on Tuesday. Short dated Pfandbrief issuers are being forced into dollars as issuing in euros would result in negative yields.

Abbey National and Länsförsäkringar Hypotek both priced seven year euro deals this week. The non-eurozone issuers played well to investors both in terms of yield and maturity.

The European Commission is taking steps to encourage future deals in the new asset class. It published the findings of a report on Wednesday and recommends standardising the regulatory framework.

Caffil returned to the euro covered bond market on Thursday for its second such bond of the year, offering investors a few basis points more in spread in return for a slightly longer maturity.

NIBC issued a €500m seven year conditional pass through (CPT) covered bond on Thursday, the first covered bond from a Dutch bank this year, but the second CPT structure after UniCredit. In contrast to many recently issued bullet maturities, the transaction offered a generous spread.