Covered Bonds

Länsförsäkringar Hypotek (LF Hyp) plans to issue smaller, but more, regular covered bond deals. Speaking to The Cover on Tuesday, vice executive president and head of treasury, Martin Rydin, said that due to growth in deposits and senior unsecured funding, covered bond funding will account for a smaller proportion of the bank’s overall need.

Münchener Hypothekenbank tapped its recent three year sterling floater for another £100m on Tuesday, taking advantage of a market window before holidays and programme updates prevent issuance.

Moody’s has downgraded Italy’s Banca Carige and will turn its attention to the issuer’s covered bonds, which traders expect to come under selling pressure in the secondary market.

Sweden’s Länsförsäkringar Hypotek returned to covered bonds on Monday, after almost two years away from the market. Its rarity and top quality collateral ensured conclusive investor endorsement, despite competing Spanish supply.

Bankinter brought the peripheral covered bond market back to life on Monday, pricing a €500m tap of a three year deal at the offer side of its curve and proving there is still strong demand for Spanish supply, despite negative headlines.

Dutch bankers have hit back at suggestions that the local regulator’s increased focus on encumbrance is behind a fall in covered bond issuance. The obsession with covered bond encumbrance does not give a true picture, they told The Cover this week.

The proportion of covered bond programmes rated triple A remained stable in the first quarter said Fitch. However, the downgrade bias is still in place and the rating of many covered bonds is sensitive to the issuer's rating.

Core issuers planning benchmark covered bonds are eyeing the euro and dollar markets, said bankers on Friday. And although the peripheral rally has slowed, the prospect of an ECB interest rate cut should help support appetite for southern European supply.

Sparkasse KölnBonn returned to covered bonds in style on Tuesday, breaking through to a level of single digits over mid-swaps for its first benchmark deal in five years.

Covered bonds have performed well this week, particularly in the peripheral markets, where spreads have moved tighter after a rally in government bonds. With core markets offering a derisory yield, investors have increasingly sought exposure to higher yielding Spanish and Italian covered bonds, especially among the smaller and generally higher yielding credits.

Aareal Bank closed a £200m sterling covered bond FRN on Wednesday, making its public debut in the currency two decades after entering the UK commercial real estate market.

Sparebank 1 Boligkreditt returned to the dollar market on Wednesday for its fifth benchmark deal since 2010. It attracted a much broader span of interest than its previous deals, with strong demand from Asia.