Covered Bonds

Increasing uncertainty over the outlook for Peripheral European bond markets has led to profit-taking in core European, Scandinavian and UK covered bonds — a move that has been exacerbated by a widening in the Bund swap spread. Peripheral covered bonds have fared much worse, due to sovereign underperformance, though turnover has been negligible.

Stadshypotek pushed the dollar covered bond curve out to seven years this week, pricing the longest covered bond benchmark in the currency since 2007.

New Zealand moved a step closer to domestic covered bond legislation this week, with a parliamentary select committee recommending that the country’s covered bond bill be passed. The Finance and Expenditure Committee opted to retain a 10% limit on issuance, but said that the risk to senior debt holders and depositors were outweighed by the benefits that covered bonds could bring.

SNS Bank has released guidance for its newly structured Hermes XVIII RMBS, just 15bp wider than where the bank priced a covered bond one month ago. The move follows Yorkshire Building Society’s Brass No 2 RMBS, which last week set the tightest spread for a UK RMBS since the onset of the financial crisis — and a level tighter than where sterling covered bonds trade.

Deutsche Hypothekenbank found demand lacklustre for its seven year mortgage Pfandbrief on Tuesday, with even domestic buyers proving reluctant to participate.

After postponing its inaugural deal in early May, Global bank has once again returned to the covered bond market and has mandated joint leads for the first Panamanian covered bond. Chile, meanwhile, has had another attempt at putting together a covered bond law.

Markit is expected to unveil a new tradable liquid covered bond index in October or November. Though it may not necessarily be actively traded, it should provide a more useful measure than the existing index, as it will help investors to gauge more closely their performance in relation to the most relevant parts of the covered bond market.

Deutsche Hypothekenbank Hannover mandated for its second benchmark covered bond of the year on Monday. The borrower is expected to price the seven year mortgage backed trade on Tuesday, taking the number of deals in that maturity year to date to almost double that of 2011.

Spain’s CaixaBank launched a novel covered bond tender offer on Friday. The borrower will buy back at par up to €2.11bn of floating rate bonds from retail clients but participating bondholders must keep the funds in a new deposit account for at least a year after the exchange.

Sweden’s Stadshypotek priced a A$750m inaugural transaction on Friday, paying only a small premium over where it would have funded in the domestic market.

Sweden’s Stadshypotek on Thursday became only the fourth issuer to launch a benchmark Kangaroo covered bond. Despite an explosion of domestic supply this year, appetite for Australian dollars remains strong, which bodes well for other Nordic issuers looking at inaugural trades.

BPCE sold the tightest French covered bond of 2012 on Tuesday, pricing a five year deal flat to its curve.