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.

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.