Covered Bonds

After a four year absence, Portugal’s Banca Santander Totta mandated leads for a three year euro covered bond to be launched on Tuesday subject to market conditions. The short three year tenor was applauded by bankers, who wondered whether the issuer might be able to fund with a double digit spread pick-up over mid-swaps.

Some of France’s biggest banks are set to give the country’s meagre RMBS market a boost this year as they set up programmes in response to regulator pressure to free up capital.

The European Banking Authority's (EBA) draft guidelines for encumbrance reporting leave out vital disclosures such as emergency liquidity provided by central banks, said Fitch late on Thursday. Unencumbered assets that have been disclosed may not actually be available.

Covered bonds are finishing the week tighter with demand spurred after Bunds softened, allowing investors to hit absolute yield targets. Traders reported investors looking to extend maturities, though selective sales of long-dated Norwegian bonds have raised speculation of primary activity next week. Core to peripheral convergence is still broadly evident especially in Ireland, but signs of fatigue have become evident in long dated multi-Cédulas and selective short-dated single name Cédulas.

NIBC Bank and Aktia Bank mandated leads for European roadshows this week, and the issuers are expected to launch covered bond deals sometime in early April.

National Bank of Canada extended its euro curve by two years and priced its second euro covered bond, a €1bn seven year benchmark, on Tuesday. It looked cheap versus its previous deal, but fair value to where other Canadian transactions were trading on Tuesday.

AIB Mortgage Bank enjoyed a stellar response to its first covered bond of the year. The deal attracted the highest level of oversubscription for any Irish covered bond since the Irish government’s bail-out of its banks, pricing with a double-digit spread over mid-swaps, and with no new issue premium.

Deutsche Pfandbriefbank (Pbb) returned to the covered bond market on Tuesday to issue a €500m five year benchmark. The book attracted over €1.1bn of demand, a stronger performance than the disappointing eight year benchmark that it priced in January.

DBRS published a comment on Thursday comparing conditional pass-through covered bonds with securitizations. Investors in conditional pass-through structures must monitor the underlying assets, cash flows and extension risk more carefully than those investing in bullet maturity structures. Investors must therefore be more skilled in credit analysis.

This week’s suite of covered bond deals have performed well and underscore that the market is receptive. AIB Mortgage Bank’s transaction was clearly the star of the show with its bond trading 10bp inside reoffer and its whole curve 3bp to 4bp tighter on Thursday paying little heed to bearish overnight comments from the Federal Reserve’s chair, Janet Yellen.

Swedish lenders should set a 70% loan to value cap for interest only mortgages and loans higher than that should be on a repayment plan, the Swedish Bankers’ Association said on Wednesday. Investors welcomed the news but said it would have a marginal effect. The Riskbank's governor, Stefan Ingves, said on Wednesday that mortgage risk weights should rise.

AIB Mortgage Bank enjoyed a stellar response for its first covered bond this year. The deal attracted the most demand for any Irish covered bond since the Irish government’s bail-out of its banks.