Covered Bonds

Banco Santander’s first covered bond for nearly a year, a €2bn five year, surprised the market by hitting the middle part of the curve on Monday. The spread did not change from initial price thoughts to final terms, which showed the plan had been to take a large chunk out of the market, bankers told The Cover.

Deutsche Genossenschafts-Hypothekenbank has hired banks for a mortgage Pfandbrief, which is pencilled in for Tuesday. It may have company from Commerzbank, which The Cover understands is also eyeing Tuesday for Europe’s first ever SME structured covered bond.

The Spanish party continued on Friday when Kutxabank opened books for the fifth Spanish covered bond of the year. Demand for the no-grow €750m four year Cédulas trade was exceptionally strong, paying testimony to the high level of Cédulas redemptions as well as a renewed appetite for risk. But alongside those factors, the bank and its collateral pool are fundamentally sound. Belfius Bank has mandated joint leads for a 10 year.

Deutsche Kreditbank, a wholly owned subsidiary of BayernLB, contributed to a trickle of super-tight Pfandbriefe from German names on Friday when it set the spread on a €500m public sector deal at 3bp over mid-swaps.

Just three transactions were priced from Europe’s core regions this week. But by this time last year 22 benchmark issuers had raised nearly €30bn between them and not a single one was from the periphery.

Of the 13 European covered bond deals that have priced so far this year, more than half have been from the periphery markets. In the last week alone, four Spanish deals, two Italian transactions and the first Portuguese issue since the onset of the eurozone crisis were priced.

The senior unsecured and covered bond markets supported a number of well-bought deals this week, as investors appeared willing to keep the FIG rally rolling on through some softening of new issues.

Isbank’s deputy CEO, Erdal Aral, has told The Cover that the bank is planning to issue Eurolira bonds, dollar bonds and covered bonds in 2013 — and that these three instruments are likely to feature in most large Turkish banks’ funding plans this year.

Despite order inflation concerns and fears of profit taking on older peripheral deals that are now trading back above par, the covered bond market remains good for new issues, such as BBVA's 10 year launched on Thursday and Kuxtabank's four year, which was mandated on Thursday, bankers told The Cover.

Intesa Sanpaolo is set to price the longest covered bond of the year so far at over 100bp through the Italian sovereign and on the back of a stunning, high quality book. The result could have been expected given the very supportive technical backdrop, but the market environment is not as conducive as last week.

A covered bond that offers identical credit quality to any other but which is immune from rating volatility should prove a boon to both investors and issuers. A pass-through structure would achieve just that, and NIBC’s decision to explore it should be applauded.

Santiago Armada, head of funding at Banco Popular Español, talks to The Cover about this week’s €500m six year covered bond issue, as well as the general situation in Spain and his bank’s approach to refinancing LTRO liquidity.