Covered Bonds

LBBW and Westpac issued covered bonds in dollars this week, gaining superior funding to what could have been achieved in euros.

UniCredit issued its inaugural conditional pass through covered bond on Thursday flat to where it would have priced a deal from its soft bullet programme.

UniCredit issued its inaugural conditional pass through covered bond on Thursday and despite the new structure, the final spread was flat to where it would have priced a deal from its soft bullet programme. The head of group strategic funding emphasised the deal’s rating stability as the key attribute and not its collateral efficiency.

European authorities want banks to provide credit to small and medium sized enterprises through SME backed covered bonds. But they don’t need the funding; they need capital. They need securitization.

LBBW successfully issued a $500m three year Reg S Pfandbrief on Thursday. As the deal funded dollar assets, no swap costs were involved and the overall funding was marginally cheaper for LBBW than the level it could have achieved in euros. But with Pfandbrief yields negative in this tenor, euro issuance would have been impractical.

ABN has followed Credit Suisse by issuing a consent solicitation in which it proposes to change 10 outstanding hard bullet covered bonds to soft bullet maturities.

UniCredit has mandated leads for the first deal to be issued off its newly restructured conditional pass through (CPT) covered bond programme, and is expected to launch the deal on Thursday.

Landesbank Hessen-Thüringen Girozentrale (Helaba) issued a €1bn Pfandbrief on Wednesday at a final spread that was deeply through mid-swaps but got a strong response as it was able to offer a positive spread to Germany, where yields are negative. At the same time, Danske Bank issued this week’s only euro benchmark. As it was not eligible for the covered bond purchase programme it offered a quite attractive spread.

The primary market sprang back to life on Tuesday, as covered bonds from lower rated issuers in Germany and Italy attracted books that were many times covered. The successful outcomes illustrated that the market was not concerned about the outcome of negotiations on the extension of the Greek debt bailout or the prospective timing of the first US rate hike.

Raiffeisenlandesbank Niederosterreich-Wien (RLB-NW) became the third Austrian bank in the last few weeks to launch a 10 year covered bond. By pricing tighter than the previous two, the deal showed investors are unconcerned about Austrian banks in general or Raiffeisenlandesbanks in particular. The result suggests Banco Popolare Societa Cooperativa (BPIM) and Dexia Kommunalbank will enjoy a solid reception for their seven year benchmarks due to be launched on Tuesday.

With investors squealing at this week’s new issues that crunched spreads to record lows, next generation covered bonds could meet the sector’s increasingly desperate need for higher yielding products. Both conditional pass through (CPT) and dual recourse structures backed by small to medium sized enterprise loans or infrastructure projects are under way, bankers report.

Caixabank’s plans to acquire Banco BPI will damage the issuer’s solvency and Moody’s has put the issuer rating on negative watch. Though the rating of both its mortgage and public sector covered bonds will also be dragged down, planned changes to rating agency’s methodology should ultimately mean the ratings end up unchanged.