Covered Bonds

Covered bond syndicate officials are predicting as many as five deals will be launched next week following a wave of successful core transactions.

The quiet period for FIG ended this week with a handful of deals emerging in the covered bond and senior unsecured markets. And in contrast to several tightly priced core European deals seen earlier this year, in which investors had pushed back on terms seen as too aggressive, bankers are now reporting a shift in sentiment.

HSBC France surprised the covered bond market on Tuesday this week when it returned for the first time since 2010, breaking a euro supply drought that had been in place since mid-March.

Münchener Hypothekenbank (MuHyp) closed another successful euro benchmark covered bond this week and could visit the dollar market later in the year. It also has its sights on the sterling market, where investors have become increasingly receptive to the tight spreads German borrowers offer.

After an absence of eight months, Westpac returned to the euro covered bond market on Thursday, mandating joint leads Barclays, BNP Paribas, UBS and Westpac for a seven year euro denominated €1bn benchmark.

The quiet period for FIG ended this week with a handful of deals emerging in the covered bond and senior unsecured markets. And in contrast to several tightly priced core European deals seen earlier this year, in which investors had pushed back on terms seen as too aggressive, bankers are now reporting a shift in sentiment.

Bayerische Landesbank sold a smoothly executed €500m 10 year transaction on Thursday, with cash rich investors willing to compromise on tight spreads and low coupons. Peripheral issuers could soon offer them juicer yields, said bankers.

BNP Paribas priced a €1bn seven year French covered bond on Wednesday following the excellent reception for HSBC France’s Obligation à l’Habitat. Despite pricing inside its curve, BNPP attracted overwhelming demand and showed that supply starved investors are desperate for covered bond exposure.

Two leading covered bond investors based in Germany have told The Cover why they are investing, despite record low yields, and what strategic shifts they are pursuing.

Westpac has returned to the euro covered bond market for the first time since last July, mandating leads for another seven year. It follows trades from BNP Paribas and HSBC where demand was fuelled by central bank statements, that bankers said had exacerbated a short squeeze, causing investors to give up new issue premiums to get current coupon exposure.

Bayerische Landesbank sold a smoothly executed €500m 10 year transaction on Thursday, with cash rich investors willing to compromise on tight spreads and low coupons. But peripheral issuers could soon offer them juicer yields, said bankers.

Münchener Hypothekenbank (MuHyp) closed another successful euro benchmark this week and could visit the dollar market later in the year. But it also has its sights on the sterling market, where investors have become increasingly receptive to the tight spreads German borrowers offer.