Covered Bonds

Covered bond volumes soared this week as borrowers — fearing increased volatility and execution risk — priced six deals before the European Central Bank meeting. But they need not have worried as the ECB’s action, which will constrict issuance, is likely to cause spreads to tighten so that execution risks will remain at bay for a lot longer.

Banco Santander Totta surprised the market on Tuesday, announcing a mandate and opening books for its second deal this year. Though the transaction had nothing like the oversubscription seen in previous peripheral issuance, the quality of investors in the book was high.

Danske Bank’s first covered bond of the year offered an attractive spread relative to its Nordic peers, making it a straightforward sell for its lead managers. But even so, the final pricing level was just one third of Danske’s differential against top tier Swedish covered bonds issued a year ago.

With rate cuts and targeted asset purchases already priced into markets, bankers fear the European Central Bank will under-deliver on promises of market stimulus at Thursday’s meeting and trigger a fixed income sell-off. However, this will present a buying opportunity for covered bond investors, bankers told The Cover. Commonwealth Bank of Australia has issued a five year dollar benchmark.

The European Mortgage Federation - European Covered Bond Council (EMF-ECBC) has promoted Luca Bertalot to secretary general of the joint association with immediate effect following the departure of Annik Lambert.

Yorkshire Building Society issued its first euro issuance in four years and the second only UK deal in euros on Wednesday. Bankers said it offered a generous spread to fellow UK names but that it was justified.

BBVA returned to the covered bond market for the first time in more than a year on Wednesday with a 10 year Cédulas that attracted 115 investors into the book. The coupon paid was the lowest ever for a 10 year in the history of the Spanish market.

Yorkshire Building Society issued its first euro issuance in four years on Wednesday morning, a deal that bankers said offered a generous spread to fellow UK names.

OP Mortgage Bank returned for the second time this year on Wednesday to issue a €1bn five year covered bond. Though it was the tightest spread for a Finnish transaction seen in the last five years and priced with a negligible new issue premium, it still attracted a robust level of oversubscription.

BBVA returned to the covered bond market for the first time in over a year on Wednesday with a 10 year Cédulas that attracted a fairly granular book. The coupon paid was the lowest ever for a 10 year in the history of the Spanish Cedulas market.

Banco Santander Totta surprised the market on Tuesday, announcing a mandate and setting initial price thoughts for a new five year benchmark of undetermined size.

The widely anticipated public sector-backed Pfandbrief from Dexia Kommunalbank on Tuesday had been expected to go well, given the juicy spread that was likely. But the level of oversubscription was the highest of any German deal this year and even put competing issuance from Portugal into the shade.