Covered Bonds

Covered bonds are a more important term funding tool than senior unsecured, because of bail-in concerns, Rolf Enderli, head of group treasury at Credit Suisse, told The Cover on Thursday. The issuer may follow Lloyds Bank and bolster subordinate funding by exchanging ECNs with regulatory compliant additional tier one debt, said bankers.

The chief of treasury at La Caisse Centrale Desjardins du Quebec, Jacques Descôteaux, told The Cover on Thursday about the long road to this week’s inaugural legal covered bond, the bank’s first in euros. Despite a low oversubscription, the book was high quality and should perform, while a deal roadshow would not have changed the outcome, he insisted.

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.

Credit Suisse enjoyed a stellar response for its second covered bond this year, enabling it to issue €1.75bn, the biggest such deal of 2014. Seemingly generous pricing and the issuer’s strong name spurred demand.

Last week Hypo Real Estate Holding said it would sell the Dublin based Depfa plc by June. However market participants do not think that will happen, if the tight prices of the defunct bank’s covered bonds are anything to go by. But the market is wrong to think Germany won’t sell up.

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 textbook syndication attracted a high quality book and, despite being tight to the issuer’s curve, offered good relative value, as well as benefitting from scarcity value given CFF’s long absence.

La Caisse Centrale Desjardins du Quebec (CCDQ) issued its inaugural legislative covered bond on Tuesday, but despite a high quality book, a seemingly attractive spread and a two week hiatus in term benchmark covered bond supply, the issuer could only muster a modest oversubscription.

European covered bonds were steady on Monday, despite the mounting concerns over Ukraine that restarted a sovereign flight to quality bid. In the primary market National Australia Bank announced its first 10 year in Australian dollars for pricing on Tuesday, ahead of the European Central Bank meeting on Thursday and the US non-farm payroll report on Friday.

Covered bond bankers have developed a penchant for testing market appetite on days when key buy-side accounts are likely to be thinly staffed it seems.

Landesbank Baden-Württemberg (LBBW) returned to the covered bond market on Monday to issue a €500m 15 month Pfandbrief. The short dated funding was driven by the issuer’s asset liability matching needs and provided cheaper funding than it could have found in the money markets.

Covered bond disclosure has improved, but national transparency templates do not yet comply with the Capital Requirements Regulation, according to Barclays covered bond research. Bank investors must in theory apply a higher capital charge to their covered bond investments, it said.

Hypo Real Estate Holding plans to sell Depfa plc in the first half of this year, it announced on Friday. However, bankers told The Cover they did not believe it would make this target, given the low level of bids.