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.

Allied Irish Banks (AIB) this week priced its first covered bond since 2007. Vocal investors, who had at the outset demanded a wider spread, quickly changed their minds and, rather than cut their orders, were forced to inflate them.

Issuers looking for rehabilitation in the capital markets and wanting to wean themselves off central bank funding must be careful to ensure they issue strategic deals that have a high chance of performing. This should lower their long term cost of funding and enable greater market access.

The European Central Bank aims to tighten repo eligibility for covered bonds and has announced a set of rule amendments. Despite some confusion in the interpretation of these changes, the move may reflect a growing concern that covered bonds have overtaken ABS in the ECB's collateral framework.

Allied Irish Bank (AIB) has priced its first covered bond since the crisis. Vocal investors, who had demanded a wider spread were compelled to cave in to blistering demand and, rather than cut their orders, they were forced to inflate them.

ING’s head of long term funding Martin Nijboer told The Cover the issuer’s inaugural dollar covered bond was an easy decision as there was a good window to pre-fund for 2013. The $1.5bn 10 year was a strong statement as a debut trade, but rivals in the market questioned whether it was priced too generously.

Raiffeisenbank a.s., the Czech subsidiary of Raiffeisen Group which took advantage of a change in legislation to launch a €5bn covered bond programme, hopes for ECB elligibility.

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.