Covered Bonds

After a spate of seven year deals from Scandinavian banks, Norway’s DNB Boligkreditt priced a €1.5bn five year covered bond on Tuesday. The choice of tenor sat well with investors approaching year-end liquidity constraints.

Bank of Ireland Mortgage Bank launched and priced a 3.5 year covered bond on Wednesday after mandating leads a day earlier. The deal took advantage of a strong performance in Irish bonds in the wake of improving economic fundamentals, and achieved the tightest spread for an Irish issuer since late 2010 when Ireland accepted a €85bn sovereign bail-out.

In the covered bond primary market Münchener Hypothekenbank priced a €125m tap of its 1.125% October 2020 at deeply sub Euribor levels on Thursday, while in the secondary market the strong bid continued across the board, though some dealers had expected rates to sell off, before the European Central Bank announced its rate cut.

Spanish covered bonds issued by tier two banks could fare better than their Italian equivalents, even though Italian spreads have been less volatile than Spanish ones this year, RBS said on Thursday.

Repossessed Spanish properties are being sold at levels on average 71.6% lower than original valuations, Fitch said on Thursday. New mortgages are being originated with LTVs of 100%, affordability has not improved since 2008 and housing stock remains exceptionally high, its report said.

Bank of Ireland Mortgage Bank opened books for a 3.5 year covered bond on Wednesday after mandating leads a day earlier. The deal took advantage of a strong performance in Irish bonds in the wake of improving economic fundamentals, and was the tightest spread for an Irish issuer since late 2010 when Ireland accepted a €85bn sovereign bail-out.

Austrian bonds offer the best relative value and the greatest protection from spread widening, secondary market traders told The Cover as they reported continued buying interest on Wednesday.

Covered bond encumbrance is longer term, less volatile, more transparent and much less correlated with a bank's health than other forms of asset encumbrance, RBS analysts said following recent publication of the European Banking Authority’s final draft for implementing technical standards on asset encumbrance reporting.

After a spate of seven year deals from Scandinavian banks, Norway’s DNB Boligkreditt was set to price a €1.5bn five year on Tuesday. This will sit well with investors’ year-end liquidity constraints, said bankers.

National Bank of Canada could well become the third Canadian borrower to issue a euro deal after mandating joint leads for a roadshow on Monday. It was approved to issue legally compliant Canadian covered bonds at the end of last week. At least two other core European banks could be tempted to launch deals this week, said bankers, but peripheral supply hopes are on the back burner.

The new Norwegian government’s pre-election pledge to ease mortgage lending standards would be credit negative, Moody’s said on Monday. Norwegian households are already highly indebted, house prices are overvalued and inflating the credit bubble further could result in a failure to repay high LTV mortgage loans under stressed market conditions, it said.

Hypo Noe Gruppe Bank AG is set to issue its first mortgage-backed deal early in 2014 after getting a triple-A rating from Moody’s. It will be collateralised mostly by promoted housing company loans and commercial loans of average quality.