Covered Bonds

Caisse de Refinancement de l’Habitat returned to the market on Thursday for the first time since March, with a fairly priced re-opening of its €1bn January 2025 through joint leads BNP Paribas, LBBW, Natixis and Société Générale. The transaction was the only one this week that was genuinely oversubscribed. By setting price talk at an attractive initial level guidance could be tightened without losing an order.

After recent volatility this week’s syndications were not straightforward. This was most conspicuously illustrated by Crédit Mutuel Arkéa, which opened books on Thursday for a €700m July 2023. The deal competed head to head with French peer, Caisse de Refinancement de l’Habitat, which tapped investors in the 12 year. After failing to get enough traction, Arkéa was forced to reduce the issuance size to €500m and set the spread at the wide end of guidance.

The primary market sprang back to life on Thursday as two issuers launched benchmarks and a third tapped in benchmark size. But after recent volatility the syndications were not straightforward and there was a lot of price sensitivity in the books. The curious decision to supply at the long end made them even more of a challenge and the fact that two just scraped by, with one being downsized, suggested issuers have been slow to acknowledge the change in market conditions.

Ever since it became clear that the Federal Reserve was in no mood to continue its quantitative easing programme ad infinitum, the markets have been on the back foot. Thursday’s reprieve came thanks to a downward revision of US growth. But that data is historical and might not warrant a change in the Fed’s stance. Though issuers were right to spot the opportunity and jump in with deals, the spurt of activity lacked co-ordination and smacked of desperation. If the primary market is to remain open, issuers need to be more flexible on timing and tenor.

Caisse Francaise de Financement Local is lining up its first public sector covered bond issue and plans to raise at least €2bn this year, according to marketing documents seen by The Cover. Meanwhile, La Banque Postale, also owned by the French state, has mandated joint leads for a roadshow.

European credit markets opened on the back foot on Monday but the financial institutional pipeline is the best it has been all year. Despite summer holiday season approaching, issuers are likely to return when conditions have stabilised. This could occur next week when investors will have cash to deploy after an expected surge in fixed income redemptions, said bankers.

German Pfandbriefe have a strong buffer against losses if a borrower defaults, Moody’s said on Monday. Despite a continued rise in German house prices, the German Pfandbrief Act puts a conservative cap on the value of mortgage-backed loan collateral backing covered bonds, the agency said.

Three German borrowers issued benchmark covered bond deals this week with variable results. The transactions illustrated that German investors have become more discerning since May 22 when Federal Reserve chairman Ben Bernanke revealed that he was considered scaling down the Fed’s bond-buying programme.

Aktia Bank issued its first covered bond from a newly restructured programme, following a merger with its holding company Aktia plc. The €500m issue broke the scarcity of euro denominated five year supply from core Europe, helping Aktia get the deal away in choppy markets at a slight premium to outstanding Finnish paper.

The Luxembourg parliament last week passed amendments to legislation which rating agencies and analysts agree will strengthen the law in several ways. Though there is a better hope that primary issuance will now be revitalised, it is still likely to be a fairly niche market, said analysts.

Three German borrowers issued benchmark covered bond deals this week with variable results. The transactions illustrated that German investors have become more discerning since May 22 when Federal Reserve chairman Ben Bernanke revealed that he was considering scaling down the Fed’s bond-buying programme.

Moody’s raised the Timely Payment Indicator of Co-Operative Bank’s Moorland covered bond from Probable to Probable-High on Thursday even as the bank issuer rating was cut to Caa1 from Ba3. The counterintuitive move ensures the covered bond stays in investment grade territory. Though welcome, it has led some participants to conclude that ratings are becoming harder to fathom.