Covered Bonds

On Wednesday morning Pfandbriefbank der Schweizerischen Hypothekarinstitute — the institution responsible for providing Swiss mortgage banks with loans to finance their mortgage businesses — issued a triple-tranche transaction totalling Sfr782m.

Despite growing concerns that a Spanish bad bank will cause collateral pools to shrink, there is a growing sense of confidence that real money Cédulas investors will not become forced sellers as bonds hold the investment grade rating threshold and the ECB dampens systemic risk fears.

On Wednesday morning Pfandbriefbank der Schweizerischen Hypothekarinstitute — the institution responsible for providing Swiss mortgage banks with loans to finance their mortgage businesses — issued a triple-tranche transaction totalling Sfr782m.

The future looks bleak for Credit Immobilier de France (CIF), despite €28bn of French government guarantees that bode well for a spread tightening. A bank merger has not been entirely ruled out but as this would require a change of law, it looks unlikely. And, with the borrower’s viability rating downgraded to F, Fitch says it will be forced into run-off.

Deutsche Pfandbriefbank has mandated Barclays and UBS to conduct investor meetings in the UK to see if there would be enough demand for a sterling denominated covered bond. Despite surprise and scepticism that the borrower would be able to pull it off, the roadshow should at least help broaden its investor base.

Panama’s Global Bank has set guidance and built a strong book for its inaugural dollar covered bond, which could open up a Latin American market for the asset class.

European covered bond investors interviewed by The Cover on Friday said they were preparing for a turbulent week ahead and were de-risking from peripheral exposure where possible. However, traders reported that they had only seen buyers following the recent widening in peripheral markets.

Deutsche Hypothekenbank found demand lacklustre for its latest mortgage Pfandbrief on Tuesday. Even domestic buyers proved reluctant to participate in what was the tightest seven year covered bond of 2012, signaling an end to the dash for core assets and the return of new issue concessions.

Sweden’s Stadshypotek pushed the dollar covered bond curve out to seven years this week, pricing the longest covered bond benchmark in the currency since 2007. Issuers have been eager to launch longer dated dollar deals for years, and syndicate bankers are confident of follow-on trades in the same tenor.

With peripheral concern resurgent, covered bond investors are looking for safety. But having grown tired of exceptionally tight core levels they are also in search of spread. Nordic issuers are best placed to offer them both and should be taking advantage of the primary while they can, said syndicate bankers.

Santander Totta will become the first bank to undertake a liability management exercise in which RMBS will be exchanged for a covered bond. The innovative operation offers key advantages for both investors and the issuer, and could become a model for other borrowers, particularly from Spain which has the greatest potential by virtue of its large and well established covered bond and RMBS markets.

A disappointing Pfandbrief on Tuesday may be the signal that the dash for core assets might have run its course. Whatever the news on Spanish banks later this week, peripheral and unloved sectors like ABS might be ripe for a rush of buying.