Covered Bonds

Ålandsbanken priced a €250m no-grow five year Finnish covered bond on Tuesday after an extensive marketing period. The trade offered a decent pick up over where the comparables named by the leads were quoted.

Achmea Bank has priced its first RMBS of the year, Virgin Money has announced a mandate for a new UK RMBS and another issuer is planning to sell the full capital structure of an RMBS backed by Irish mortgages.

European Central Bank board member, Benoît Coeuré, has acknowledged that extreme volatility is a worrying sign of reduced liquidity. But even so, the central bank will step up its purchasing in a move that is expected to accelerate the exodus of real money demand from covered bonds. These investors will be the slowest to return when buying eventually stops. This will hit peripheral issuers the hardest, said analysts at Crédit Agricole CIB research.

Leads KSK Koeln, LBBW, and WGZ opened books on an €250m eight year Pfandbrief for Kreissparkasse Koeln (KSK Koeln) on Monday as Bund futures showed signs of stability. Nordic issuers are circling and could take advantage of better conditions ahead of an EU meeting on Greece at the end of this week.

Despite the unexpectedly positive market tone on Thursday, bankers say that euro benchmark covered bonds are unlikely next week, as new issue premiums would need to be hefty. Several issuers are lining up for sub-benchmark trades however, and the sterling and dollar markets remain a possibility.

The German Pfandbrief market continues to shrink, driven by a decline in the public sector, which is now almost the same size as the growing mortgage sector, according to the first quarter cover pool data recently published by the Association of German Pfandbrief banks (VDP).

The European Covered Bond Council has proposed a new generation of secured funding notes, halfway between covered bonds and securitizations. But getting them off the ground is still in the hands of the regulators.

The long end of the French, Belgian and Dutch covered bond market is in effect closed for primary issuance because it is too expensive compared with government bonds.

The Bund correction has driven mid-swaps rates higher across the curve to the point that short dated German Pfandbriefe now offer a positive yield.

Just one small covered bond emerged from newcomer Natixis Pfandbriefbank this week, while several others mandated for sub-benchmark deals.

The European Covered Bond Council has proposed a new generation of secured funding notes, halfway between covered bonds and securitizations. But getting them off the ground is still in the hands of the regulators.

With the back-up in Bund yields driving the mid-swaps rate higher, all three year German Pfandbriefe now offer a positive yield. However, while the three year tenor is back on the table, the improvement is marginal and the five year remains more optimal.