Covered Bonds

A big rise in issuance from Spain has helped push Crédit Agricole CIB to the top of Dealogic’s covered bond bookrunner table for €500m-plus deals for the first time. Bankers say reciprocity has played a big part in the rise and fall of many banks.

Trading in Spanish and Italian covered bonds was relatively stable against asset swaps on Monday, while they tightened versus their domestic sovereign bonds, following the news that Cyprus faces a bail-out from the European Union.

Cédulas Hipotecarias could be hit by a European Union ruling on Spanish mortgage enforcement, according to ratings agency DBRS. The ruling increases the chance of borrowers contesting mortgage enforcement proceedings and this could increase the already lengthy foreclosure period, it said.

Vorarlberger Landes- und Hypothekenbank (Vorarlberger Hypobank) has picked banks to manage its first euro benchmark covered bond, which it plans to launch in mid-April, a funding official at the issuer told The Cover.

DNB Boligkreditt issued its first dollar benchmark since 2011, pricing a $2bn deal on Thursday evening in the US. The bond, which was increased from $1.5bn, proved a huge success in terms of investor diversification, granularity of orders and the funding level.

Bank of Ireland priced a hugely successful €500m five year transaction on Friday, bringing its longest benchmark covered bond in over three years and radically repricing its curve relative to the Irish sovereign.

CaixaBank launched its first euro benchmark covered bond in over year on Tuesday, pricing a five year transaction well inside the sovereign curve. A limited spread concession relative to its better-rated peers put some investors off, but many more leapt at a deal offering yield and a spread with the potential for performance.

Deutsche Pfandbriefbank (Pbb) launched its second benchmark covered bond of the year this week. It priced a seven year deal at less than half the spread it paid for the same tenor only months ago, as it continues to shake off a troubled past and close the gap on its competitors.

Bankia bought back a much higher than expected €1.2bn of its covered bonds in a liability management exercise this week, paying a decent premium. The high tender prices helped lift the market, which was also boosted by the redemption of over €5bn of Cédulas on Thursday.

Core covered bond issuers have become used to bringing deals flat or even through their secondary curves. But Stadshypotek’s struggle to price a benchmark in the single digits this week offers a lesson in the dangers of complacency, said covered bond bankers. It also signals the end of core spread contraction and the return of new issue premiums.

The rating of swaps in covered bonds has become increasingly inefficient and expensive for issuers as rating agency methodologies have tightened in the last few years. In response to the stricter swap criteria that are now in place, bankers have been discussing draft proposals and told EuroWeek that the talks could help to clear a big source of rating uncertainty for the senior secured product.

Bankia bought back a much higher than expected €1.2bn of its covered bonds in a liability management exercise this week, paying a decent premium. Meanwhile Spanish covered bonds are performing strongly, after investors received over €5bn of Cédulas redemptions on Thursday.