Covered Bonds

Norddeutsche Landesbank priced its second US dollar covered bond benchmark this week, attracting a multiple oversubscription from a diversified range of high quality global investors. Though expensive, the funding showed the borrower’s commitment to building its US curve and establishing solid name recognition which will help it efficiently match-fund its dollar assets.

Covered bonds from Australia and New Zealand have varying levels of exposure to the property cycle, according to latest Moody’s research. Even if prices were to fall, there are safeguards to moderate the impact, it said.

The European Banking Authority will allow banks to use covered bonds as freely as sovereign bonds, but it has damned ABS as the least liquid asset class of all. But, had the EBA looked at senior plain vanilla securitisations over the last three years instead of five, it would have found ABS more liquid than covered bonds.

Norddeutsche Landesbank is set to open books for a US dollar denominated benchmark, having mandated leads for a roadshow two weeks ago. Meanwhile, Berlin Hypothekenbank on Tuesday successfully placed a €125m tap of its five year deal at deeply sub-Euribor levels, highlighting the funding disparity for German issuers in dollars compared to euros.

SEB returned to the covered bond market on Monday to issue its second seven year euro benchmark of the year and the second from a Swedish bank in less than a week. Though SEB was unable to match the cheap funding in Stadshypotek’s recent deal, it was placed with more real money investors.

The credit quality of Pfandbriefe is not under threat from the recent rise in German apartment prices, Moody’s said on Monday.

Many Pfandbrief issuers have been happy to keep their traditional investor base of German insurance companies content largely through creating tailor-made private placements. But one issuer is shaking things up.

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.