Covered Bonds

The FIG market is showing its first signs of weakness in quite some time, as investors turn to the yields on offer from higher beta names, leading some other trades to flounder and others still to widen after pricing.

BPCE SFH followed Commerzbank with a 10 year covered bond, but in contrast it offered a very attractive spread to mid-swaps and to OATs and looked set for an eye-catching 2.5% coupon. The deal was announced late in the morning, but it attracted vigorous demand even before the books were open

Sweden's finance minister, Anders Borg may want the country's banks to rely less upon the covered bond market and more upon growing their own deposit bases, but if Swedish banks were to abandon a market that has served them so well for so long, it could do more harm than good.

Bids for core market covered bonds are dwindling, bankers said on Wednesday. However, higher yielding peripheral deals, and all bonds at the long end, remain well supported, though spreads are unchanged.

ING is set to become the third Belgian issuer to offer covered bonds after mandating joint leads to roadshow its inaugural programme, which has a triple-A rating from Fitch and Moody’s.

Commerzbank has returned for its fourth covered bond deal of the year, and the second off its new mortgage platform. It announced the €500m no grow deal on Monday, ahead of Abbey National Treasury Services launching its own deal (see other story).

Primary covered bond market activity swelled on Tuesday, with as many as four deals pricing since Monday’s close in Europe. Commerzbank, Nykredit and Westpac all made appearances (see other story) but, the pride of the pack was Abbey, which priced the first publicly syndicated UK covered bond in almost two years, setting a target size of €1bn.

The transfer of mortgages to UBI’s cover pool increases collateral risk but is mitigated by high overcollateralization, which has increased by even more, Moody’s said on Monday.

Having issued a A$900m 10 year last week, Westpac returned to the covered bond market on Monday to mandate its second US dollar benchmark of the year. It follows recent dollar deals from Royal Bank of Canada and NordLB and will be the fourth in that currency from an Australian issuer this year. The deal news came as Fitch launched an Asian covered bond publication.

There is an even chance that two deals could surface from Europe’s core and periphery next week, bankers said on Friday, but potential issuers have been perturbed by the performance of this week’s two deals, both of which have softened slightly. However, in both cases there were specific factors at work that are unlikely to impinge on prospective deals where there is high confidence of a strong reception.

Swedish banks depend heavily on market funding and are exposed to a structural liquidity risk, making them sensitive to disruptions in the financial markets, according to the country’s regulator. It may raise the risk weighting on mortgages loans to 25%, having already tripled it to 15% in May.

Sparebank 1 Boligkreditt became the first Norwegian issuer in over two years to fail to attract a fully subscribed book when it priced a €1bn long six year benchmark on Tuesday. The anaemic result was surprising in the context of DNB Boligkreditt’s earlier success, leading bankers to question the choice of maturity, the appetite for Norwegian risk and the enthusiasm for tightly priced Nordic deals.