Covered Bonds

After last week’s flurry of covered bond deals, the primary market kept up its pace on Monday as Norddeutsche Landesbank mandated leads to roadshow a US dollar benchmark, while Aareal Bank priced a small floating rate deal in euros. The secondary market was well supported, but activity was limited by mounting concern that this week’s US debt ceiling deadline may be broken.

This week’s three Italian covered bond issues continued to outperform in secondary trading on Friday while the primary market paused for breath. Meanwhile, Moody’s has put Credito Emiliano’s mortgage covered bonds on review for downgrade, highlighting the benefits of smaller Italian banks coming to market before further rating moves.

Italian mid-sized banks this week ended the national champions’ stranglehold on Italian covered bond issuance so far this year. An accommodating backdrop and clear demand for Italian paper in secondary markets enticed three issuers to market, two of which were making covered bond debuts.

Commerzbank launched a new mortgage Pfandbrief programme this week, making light of its debutant status to price a seven year trade flat to mid-swaps.

Two issuers succeeded with covered bond debuts on Thursday. Mediobanca’s choice of a 10 year maturity for its inaugural deal was vindicated when it priced a €1bn benchmark comfortably inside guidance, while Commerzbank’s first foray into the mortgage Pfandbrief market enjoyed the smooth execution expected of a leading German bank.

Several European borrowers launched well received senior unsecured deals and covered bonds this week making a mockery of fears over the impact of the US’s shutdown troubles. CaixaBank, Banca Popolare dell’Emilia Romagna and UBI Banca flew the flag for the periphery, while Lloyds Bank hit the senior market after an 18 month hiatus.

Italy’s Mediobanca decided not to press ahead with a covered bond debut on Wednesday as the Republic of Italy launched a seven year BTP on the same day. Instead the issuer is expected to launch a deal targeting the mid to long end of the curve on Thursday, when it is likely to be joined by Commerzbank, which has mandated for a seven year mortgage Pfandbrief.

Commerzbank plans to issue a seven year mortgage Pfandbrief on Thursday, in its first mortgage-backed deal not issued from Eurohypo’s programme.

Activity in the primary covered bond market picked up on Tuesday as two issuers from Europe’s core and periphery launched deals. Both were warmly received, but the difference in the cost of funding between them was more than 200bp — which, given the possibility of another injection of extraordinary long-term central bank liquidity, may not have been justified.

Moody’s has assigned a triple A rating to the €199m of commercial mortgage back Pfandbriefe issued by NATIXIS Pfandbriefbank AG.

Spain’s new export finance covered bonds, Bonos de Internacionalización (BI), have a weaker credit profile than existing export finance covered bonds but greater flexibility, Moody’s said this week. The Spanish authorities’ introduction of the new bonds comes as they work to improve the efficiency of covered bonds as a funding tool.

Moody's has assigned a long-term rating to the mortgage covered bonds of Slovakia’s Vseobecna uverova banka (VUB). The bonds, which are legally enshrined within the Slovak Bond Act, are rated at A1, two notches above the issuer’s A3 rating.