Covered Bonds

Belgium’s KBC Bank and Italy’s Credito Emiliano have added their names to Deutsche Kreditbank and mandated joint leads for deals that should all be launched on Tuesday. Despite the high number of covered bond transactions that will compete for investors’ attention at the same time, the small deal sizes and their diversified appeal should ensure that the trio enjoy a solid reception.

Four covered bond programmes will disappear within weeks and as many as 23 more are set to go in the future, Commerzbank research revealed this week, highlighting the parlous state of the market. New programmes are in development in Asia but these alone are unlikely to compensate for the losses.

The primary covered bond market should pick up momentum next week, bankers told The Cover on Friday, with at least three deals already mandated and a further two possible. With many banks having emerged from blackout, and market conditions strong, there is a good chance that another mandate could be announced as early Friday afternoon for launch on Monday.

Standard & Poor’s put the BBB/A-2 ratings of German-owned but Dublin-based Depfa Bank on CreditWatch negative on Friday as it said the sale of the bank to a weaker credit had become more likely.

Norddeutsche Landesbank this week issued its second Flugzeug Pfandbrief at much tighter levels than its debut last year, but was unable to attract anything like the same scale of interest. The funding was a lot cheaper than aviation ABS backed by much stronger collateral, illustrating high confidence in the Pfandbrief framework.

Kommunalkredit defied conventional wisdom on Tuesday and priced the first covered bond deal of the year to come flat to its interpolated curve. Given earlier concerns over the lack of appetite for core covered bonds and difficulties surrounding the wind down of Hypo Alpe-Adria, even the leads were surprised by the extremely positive outcome.

Banco Popular Español was downgraded by Standard & Poor’s on Thursday and, though general market sentiment was clearly more risk averse, with Bonos underperforming Bunds, the borrower’s Cédulas was unchanged after recently being better bid. Meanwhile, Italian covered bonds remained well supported, even as renewed Italian political instability caused BTPs to sell off.

Nobody believes that Danièle Nouy, the chair of the European Central Bank’s new single supervisory board, will allow any European financial institution to fail. On Sunday she was reported to have said that this is what the market expects — but that couldn't be further from the truth.

The defunct multi-Cédulas sector has outperformed the rest of the covered bond market this year, with the price of some deals up by seven points. The sector, which was well supported on Wednesday, gained an extra boost this week when Fitch upgraded several bonds, said traders.

Norddeutsche Landesbank Girozentrale issued its second Flugzeug Pfandbrief at much tighter levels than its first deal. But in the face of competing agency demand and less performance potential, it was unable to attract anything like the scale of demand of its first deal.

Kommunalkredit defied conventional wisdom on Tuesday and priced the first covered bond deal of the year to come flat to its interpolated curve. Given earlier concerns over the lack of appetite for core covered bonds and difficulties surrounding the wind down of Hypo Alpe-Adria, even the leads were surprised by the deal’s extremely positive outcome.

Cash held in segregated accounts for the benefit of Italian covered bondholders, could be bailed in, in the event of an issuer and servicer default, Fitch said on Tuesday, following recent changes to Italy’s covered bond and securitisation law.