Covered Bonds

LBBW returned to the covered bond market on Monday to issue a €500m 15 month deal from a €550m book. The exceptionally short dated funding was driven by asset liability matching needs and provided cheaper funding than the issuer could have found in the money markets.

BNP Paribas, HSBC and Société Générale have all had a good year so far in covered bonds, taking market share from Barclays, Crédit Agricole and Deutsche Bank, according to Dealogic’s latest data.

Bayerishe Landesbank’s covered bonds were unaffected on Friday by news on the wind down of Austria’s Hypo Alpe-Adria (HAA), which it partially owns. However, other Austrian covered bonds widened a few basis points after Austria’s finance Michael Spindelegger warned that unsecured bondholders might need to share in the bank’s losses.

Demand was still clearly skewed to the higher yielding peripheral markets on Friday, especially for second tier Italian banks, which offer double the spread of multi-Cédulas. And if peripheral spreads continue to tighten, the newly enacted Italian Obbligazioni Bancarie Collateralizzate, or Italian SME backed covered bonds, might eventually attract interest. But only when secondary legislation has been formulated and come into force which will take time.

Canadian banks are finally closing in on covered bond deals, having kept the market waiting for some time. They look set to price deals in euros soon after they emerge from blackout at the end of February.

Covered bond spreads are so tight that there is almost no scope for secondary performance, bankers have warned. “Core markets are in a zone of low oxygen,” one said on Tuesday, as KBC Bank priced a deal within a few basis points of Landesbank Hessen-Thüringen and Deutsche Kreditbank.

The covered bond primary market lived up to supply expectations this week with five issuers tapping the market in the first two days of the week. BNP Paribas stood out, showing the strength of its brand, and the market, by pricing the tightest French covered bond deal of the year.

The European Commission wants to harmonise the covered bond market and will assess its preferential regulatory treatment, according to a draft document. Harmonisation of national laws will be almost impossible, bankers told The Cover on Thursday, but collateral transparency standards could be harmonised and collateral eligibility could be more precisely defined.

Credito Emiliano’s €750m five year has earned praise for its tight pricing, but it was demand from outside the eurozone, including from Asia and Switzerland, that suggests Italy’s recovery story is gaining traction.

The European Commission wants to harmonise the covered bond market and will assess its preferential regulatory treatment, according to a draft document. Harmonisation of national laws will be almost impossible, bankers told The Cover on Thursday, but collateral transparency standards could be harmonised and collateral eligibility could be more precisely defined.

Investor appetite has shifted to non-national champions, bankers told The Cover on Wednesday, with the window for issuance wide open for lower rated peripheral banks. A Portuguese issuer could step forward soon, one banker said.

Credito Emiliano’s €750m five year has earned praise for its tight pricing, but it was demand from outside the eurozone, including from Asia and Switzerland, that suggests Italy’s recovery story is gaining traction.