Covered Bonds

Intesa Sanpaolo brought forward a 12 year deal on Wednesday, after witnessing the extraordinary demand for UBI Banca’s 10 year. Intesa’s book was less spectacularly oversubscribed, but its long tenor should ensure a high proportion of quality interest, boding well for its performance.

The primary covered bond market sprang into life on Wednesday with four deals from Germany, France and Italy. Pride of place went to Unione di Banche Italiane, the only one to have publicly mandated a deal the previous day. It was oversubscribed about five times based on the unreconciled book and may have pushed Intesa Sanpaolo into bringing forward its own issuance plans (see other story).

Moody’s and DBRS have upgraded the Series 1 covered bonds of Portugal’s Banco de Investimento Imobiliario (BII) after they were restructured using a pass through mechanism. The notes will be retained and are designated purely for central bank funding. Parent bank, Banco Comercial Português (BCP), is monitoring the market and, if it were to issue a publicly syndicated deal, it would use its existing programme structured with a soft bullet maturity, said bankers.

WL Bank was set to price the shortest fixed rate euro denominated covered bond of the year on Tuesday, at the tightest spread of any transaction since November 2012. Bankers off the deal were surprised that any investor would pay such a tight price, while those on the deal said the cheap funding was a reflection of the issuer’s high quality.

Norddeutsche Landesbank Girozentrale has mandated joint leads to organise a roadshow for its second aircraft Pfandbrief and said a new deal is expected to follow.

Despite renewed emerging market volatility and, to a lesser extent, European peripheral sovereign weakness, the covered bond market was steady on Monday. Secondary market volumes have collapsed, but bankers were encouraged by the market’s stoic response to wider credit woes.

Turkey’s updated covered bond law is credit positive, Moody’s said on Monday, after the country’s Capital Market Board announced the changes last week. However, the timetable for the first Turkish euro denominated mortgage backed benchmark has been pushed back after the lira hit new lows.

Stephan Dorner is joining the credit research team at Crédit Agricole CIB in London as a covered bond analyst.

The rally in Bunds and swaps caused covered bond bankers further concern on Friday. Profit taking still dominates secondary flows, and with already heavy dealer inventories building further, the environment will not rekindle primary flow. Yet, covered bonds regularly face such corrections and in the long run yields will move higher, buyers will return and the covered market’s constructive technical backdrop will come back into play.

Pacific Investment Management Co and Source UK Services, an exchange-traded products provider, have put their expertise together to offer the first active exchange traded fund that invests purely in covered bonds.

Pacific Investment Management Co and Source UK Services, an exchange-traded products provider, have put their expertise together to offer the first active exchange traded fund that invests purely in covered bonds.

BPCE won plaudits from investors and bankers for the pricing on its €1.5bn six year covered bond which offered an unusually attractive new issue premium. In contrast to all other French issuance this year, it has performed well since becoming free to trade.