Covered Bonds

Aareal Bank this week became the second German issuer this year to price a US dollar denominated Reg S Pfandbrief. It follows the lead of LBBW which priced a similar deal two weeks ago. Though the actual funding converted back to euros will have been nominally higher than what it could have achieved in euros, savings will have been made on swaps costs.

Coventry Building Society became the first UK issuer to spurn the conventional three year sterling floating rate covered bond sector, and following its recent roadshow, sold a five year floating rate sterling benchmark covered bond on Tuesday.

Austrian and German Pfandbriefe came under pressure this week, after Fitch and Moody’s took negative rating action against a number of entities.

DBS is on course to become the first covered bond issuer from Singapore, having proposed a unique structure that will overcome the sticky issue of who has first claim on the asset pool. An agreement is close to being struck and the Singaporean lender is looking then to issue a benchmark size offering in either dollars or euros, writes Rev Hui.

German banks have a larger exposure to Heta Asset Resolution — the bad bank of Hypo Alpe Adria — than Austrian banks, said Fitch on Thursday. Despite this, Fitch thinks losses should be manageable. Research from NordLB, also released on Thursday, shows the distribution of this risk across German Pfandbriefe cover pools.

Deutsche Kreditbank closed the spread gap to its higher rated peer, Muenchener Hypothekenbank (Muhyp) on Thursday when it priced a 12 year mortgage Pfandbrief. The ambitious price was justified by the high quality book and comfortable level of oversubscription. Meanwhile Aareal Bank is out with guidance on its first RegS dollar benchmark, which will be priced later today.

Fitch put Duesseldorfer Hypothekenbank’s (DuessHyp) BBB- rating on Watch Negative and downgraded its Viability Rating (VR). The bank urgently needs capital, which should ultimately be available from the German government, said the ratings agency. It may be the latest example of the fallout from the Austrian state of Carinthia’s decision not to honour the guarantee of Heta Asset Resolution's unsecured bonds.

After a three year absence, Bankia returned to the covered bond market in style on Wednesday. With a coupon that’s likely to pay a rare 1%, the issuer was able to attract a high quality, well oversubscribed, diversified book and paid virtually no new issue premium.

The European Central Bank owns 15% of eligible benchmark covered bonds since its third purchase programme (CBPP3) began. It could end up owning 40%, which could permanently disrupt the market.

The Asian Covered Bond Forum

Nordea Finland attracted almost equal interest for both tranches of its 5.25 year and 12 year covered bond that was priced with barely any new issue premium on Tuesday. This symmetry to demand defied convention and illustrated strong comfort in the credit which enabled investors to reach for yield with a high degree of confidence.

The UK’s Coventry Building Society spurned the conventional three year sterling floating rate covered bond sector, and following its recent roadshow, sold a five year floating rate sterling benchmark covered bond on Tuesday.