Covered Bonds

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.

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.