Covered Bonds

Belfius Bank has mandated leads to roadshow its inaugural public sector backed covered bond programme and the first ever issued under Belgian law.

Münchener Hypothekenbank (Muhyp) is set to open books for its first Pfandbrief backed by environmental and social governance (ESG) mortgage loans on Wednesday. The €300m deal, which is issued under the existing German legal framework and has a second opinion from Oekom research, is expected to attract a new pool of demand for the socially conscious lender.

Hypo Noe priced its inaugural €500m Austrian mortgage-backed Pfandbrief on Monday through the bid side of its interpolated public sector curve, and with barely any sensitivity in the book. The strong result is a testimony to the enhanced demand for all covered bonds that offer a spread over mid-swaps and anything that is potentially eligible for the forthcoming European central bank purchase programme.

The European Central Bank's Targeted Long-Term Refinancing Operation (TLTRO), which will be launched on September 18, is unlikely to kick-start bank lending in southern Europe, said Fitch on Monday.

Royal Bank of Canada has priced its first Australian dollar covered bond of the year and the second in that market this year. The funding was close to what it could have achieved in US dollars and demonstrated the ability of the Kangaroo market to be strategically relevant to the global funding programmes of financial institutions, said RBC.

Toronto-Dominion Bank was set to price the first sterling denominated Canadian three year covered bond on Friday, which will be the seventh sterling covered bond this year and the third deal from a non-UK name. It is also the largest sterling deal issued by a bank outside the UK.

The Danish Financial Supervisory Authority’s proposal to limit interest-only loans to 55% of total lending on mortgages with a loan to value (LTV) ratio of 75% or more should encourage mortgage borrowers to take longer duration loans and may help assuage rating agency concerns over refinancing risk, said Nykredit analysts on Friday.

Allen Rad has left Royal Bank of Scotland, where he had traded covered bonds since 2008.

Covered bond issuers priced 10 benchmark sized deals this week, raising €11bn on the back of an aggregate €26bn of demand. Average order book sizes were boosted after the European Central Bank announced last week its intention to proceed with a third covered bond purchase programme.

The covered bond market for sterling FRNs picked up on Monday as Barclays priced the largest ever deal in the currency and Danske Bank priced a benchmark. The two borrowers follow Nordea Eiendomskreditt, which attracted robust demand last week.

Aareal Bank capitalised on the momentum created by the two successful French deals issued through mid-swaps on Monday and Tuesday by bringing forward plans to issue a euro-denominated Pfandbrief. It opened books on a three year deal on Wednesday rather than waiting until next week.

The covered bond market passed another milestone this week with Caisse Française de Financement Local (Caffil) and Compagnie de Financement Foncier (CFF) attracting book sizes that were reminiscent of the high yielding peripheral transactions seen a year ago, but at spreads well through mid-swaps.