Covered Bonds

After three senior euro bond issues this year, BBVA this week chose to extend the duration of its liabilities with the issuance of its first covered bond of the year. At 100bp through the sovereign, BBVA was the first Spanish bank to borrow significantly cheaper than the government. However, at €2bn the deal size was too large and led to a dismal secondary market performance.

The coupon on Münchener Hypothekenbank's two year Pfandbrief priced on Monday was just 0.125%, confirming investor perception of the issuer as a “surrogate” for German government bonds, deputy head of treasury Claudia Bärdges-Koch told The Cover.

BBVA’s surprise five year follows a pattern set by Intesa and suggests that other issuers, such as Banco Santander or Caixa Geral de Depósitos, could look to extend the duration of their funding with a covered bond.

Münchener Hypothekenbank was set to price one of the tightest ever Pfandbriefe on Monday after it fixed the spread on its €500m deal at 20bp through mid-swaps.

BBVA has become the first Spanish borrower to smash through the sovereign floor with the imminent pricing of its five year Cédulas Hipotecarias. The deal follows last week’s impressive funding from Intesa Sanpaolo and illustrates the continuing bid for higher yielding secured debt.

November 22-23, 2012 The Westin Cape Town, Cape Town, South Africa

Intesa Sanpaolo’s €1.25bn 10 year OBG has underscored enormous appetite for risk and has sparked debate over whether the funding door might be open for other smaller issuers from Europe’s periphery and particularly from Italy. However, it seems borrowers that could do deals would rather wait and see.

BPCE issued a €1bn seven year Obligations à l’Habitat on Wednesday just a day after France was downgraded. Its determination to go through with the deal was fully justified, said bankers, as spreads could widen when the market returns in January as fears over the French economy are likely to grow next year.

Şekerbank this week mandated banks for a European roadshow to gauge interest for a first public covered bond out of Turkey. The borrower is looking at €100m-€200m for its inaugural deal, and is confident of finding demand from covered bond and emerging markets investors alike.

Dexia’s rebranded Belfius Bank attracted a powerful swell of demand from a broad span of investors for the first bond it has ever issued and the first covered bond under the newly established Belgian law. But given the paucity of euro denominated supply and a lack of issuer diversity, the outcome was always likely to be good.

Jean-Philipe Berthaut, BPCE’s deputy chief executive and head of group funding, told The Cover it was a good idea for the French issuer to start 2013 funding with its €1bn seven year covered bond on Wednesday.

Moody’s awarded a triple-A rating to the mortgage covered bond programme of Belgium’s KBC, which mandated leads earlier this week.