Covered Bonds

Covered bonds have been well supported this week, with particularly strong bank treasury interest at the front end of the French curve, after the European Banking Authority said covered deserved equal ranking with sovereign bonds for Basel III’s Liquidity Coverage Ratio. In Germany, central banks absorbed real money selling, while peripheral markets outperformed, with Irish bonds leading the way.

German Pfandbrief banks could be set to diversify into different currencies and benchmarks as non-domestic demand for the names picks up, said MTN dealers this week.

Royal Bank of Canada (RBC) returned to the covered bond market for the fifth time this year, and its second time in euros, to issue a €1.5bn benchmark five year on Tuesday. The deal was priced with a concession to where the only other Canadian euro five year was trading — but offered a negligible new issue premium.

After emerging from blackout on Tuesday, Stadshypotek returned to the covered bond market a day later, mandating joint leads for a euro benchmark. Despite pricing the tightest seven year Scandinavian deal since 2006, the borrower attracted robust demand in an exercise that, once again, highlighted just how undersupplied the covered bond market has become.

UniCredit Bank Austria returned to the covered bond market for the second time this year to issue the country’s seventh benchmark in euros. Despite pricing with little to no new issue premium the deal attracted good demand from a wide group of investors.

The bank bid for higher rated core covered bonds will increase after the European Banking Authority said that they are as liquid as government bonds, bankers told The Cover on Thursday. As high quality liquid assets, covered bonds will get better regulatory treatment, increasing the structural bank bid and causing spreads to tighten, as Stadshypotek’s recent deal showed.

Nordea’s decision to revive traditional callable bonds reduces refinancing risk and strengthens cover pool quality, Moody’s said on Wednesday.

The Covered Bond Label Foundation should be applauded for tightening up the definition of what makes a covered bond. But a common transparency standard for investors is the real prize that issuers should be striving for to ensure covered bonds are always a step ahead of the competition — and the regulators.

After emerging from blackout on Tuesday, Stadshypotek returned to the covered bond market on Wednesday, mandating joint leads for a euro benchmark. Despite pricing at the tightest seven year Scandinavian deal since 2006, the borrower attracted robust demand, in an exercise that, once again, highlighted just how undersupplied the covered bond market has become.

Italian FIG issuers continued their assault on the funding markets on Tuesday, with Intesa Sanpaolo and Banca Popolare Milano following Monday’s deals from UniCredit and UBI Banca. With Italy having overcome its recent political travails and the market enjoying a rally that some bankers fear is unsustainable, borrowers are falling over themselves to pre-fund for 2014 — a year which Moody's expects to be difficult for Italian banks.

UniCredit Bank Austria returned to the covered bond market for the second time this year to issue the country’s seventh benchmark in euros. Despite pricing with little to no new issue premium the deal attracted good demand from a wide group of investors.

21 – 24 January 2014 The Cosmopolitan of Las Vegas. Las Vegas, NV