Covered Bonds

Finland’s OP Mortgage Bank returned to the covered bond market on Monday to issue a €1bn seven year benchmark. It paid a relatively small new issue premium, reflecting its long scarcity value, the high quality of its deal, and the deal size.

Spanish banks will be able to issue structured covered bonds under planned changes to corporate finance law, Moody’s said on Monday. The law change would enable issuers to structure dual recourse instruments with conditional pass through mechanisms backed by a wide range of assets issued from special funds.

Covered bond investors switched from short into longer dated covered bonds on Monday, secondary market dealers reported, while second tier peripheral bonds continued to attract interest. However, there was better profit taking in multi-Cédulas, which offer a modest spread over government bonds.

The covered bond investor council (CBIC) said on Friday that it supports the case for the inclusion of covered bonds as assets of extremely high quality within Basel III’s liquidity coverage ratio (LCR). The European Commission will host a public hearing on Monday on the LCR where it will consider the European Banking Authority’s analysis and recommendation.

Eika Boligkreditt opened books on Wednesday for a €500m seven year covered bond that offered a spread not seen from Norway since January 2013, and one of the largest pick-ups from a core European issuer this year. But with a new issue premium of just 2bp, the funding was cheap for the borrower.

National Australia Bank priced its first 10 year covered bond deal in Australian dollars on Tuesday, which was the first benchmark in that currency this year but the third in that tenor.

Covered bond disclosure has come on leaps and bounds over the past few years, but this week it took a humble sellside analyst to tell teams of industry specialists that, despite all their strenuous efforts, they had got it wrong.

Clydesdale Bank will sell the first UK prime RMBS of the year, after mandating leads for a euro and sterling denominated Lanark trade that will be offered in Reg-S and 144a format to attract a bid from US investors. The issuer has not been seen in the covered bond market since May 2012 when it issued a two tranche sterling deal.

Canadian, Scandinavian and German banks are evaluating the covered bond market and could be ready to issue deals next week, with three or four transactions anticipated. But several other issuers are holding back after this week’s slate of deals showed the importance of starting the book building process with an attractive spread.

Credit Suisse drew in €3.3bn of demand for its €1.75bn five year deal, the biggest of 2014 as generous pricing and name recognition spurred demand. By contrast, La Caisse Centrale Desjardins du Quebec pulled in a relatively anaemic book €1.2bn for its inaugural legislative €1bn five year deal.

Compagnie de Financement Foncier (CFF) returned to the covered bond market for the first time in over a year on Tuesday, with its newly restructured collateral pool, to issue a €1bn five-year Obligations Foncières.

The quality of Pfandbriefe is improving, according to Moody’s. Foreign exposure in German public sector Pfandbriefe has decreased by 3.1% over the last five years and foreign exposure in mortgage pools fell 2.4% over the past two years.