Covered Bonds

After much anticipation, the first Belgian covered bond deal has been mandated by Belfius Bank. Supply starved investors, who have been tracking the jurisdiction throughout much of this year while the legal framework was being set up are likely to be rewarded with a generous spread and a strongly performing deal.

Bank of Ireland has priced its first covered bond in three years, attracting a heavily oversubscribed book that was broad and granular. The deal, that many may have considered impossible only a few weeks ago, pays further testimony to the continued bid for higher yielding assets and represents a strong endorsement of covered bonds.

Fitch and Standard & Poor’s have given Belfius Bank’s mortgage covered bonds an expected AAA rating for up to €2bn of issuance from its inaugural €10bn programme, ahead of the Belgian issuer’s debut covered deal, which is being marketed this week.

Bank of Ireland Mortgage Bank looks set to reopen the Irish covered bond market and has appointed joint leads for the first Asset Covered Security since the crisis. With Irish government bonds trading inside Spain’s and Italy’s, the deal should get more competitive funding.

After last week’s primary activity, when two infrequent covered bond issuers tapped the dollar market and one frequent issuer tapped euros, prospects this week are focused on Belgium and Ireland. Secondary flows have been mixed to better bid, especially in core names, and despite increased uncertainty over Greece.

The covered bond market enjoyed a spurt of activity on Friday after weeks of very little issuance with Compagnie de Financement Foncier, Crédit Mutuel-CIC and Belfius following on the heels of Sparebank 1 Boligkreditt last week. But the flurry could well presage another dry spell, as there are only two weeks to go before markets effectively start closing down for year end.

Crédit Mutuel-CIC Home Loan SFH found plenty of demand for its debut dollar covered bond on Thursday from US investors eager for a higher-yielding alternative to SSAs. The issuer paid a premium for its diversification but it looked to pay off as most of the investors in the $3.2bn book were new to the name.

The European Central Bank’s second covered bond purchase programme (CBPP2), reached just 41% of its €40bn target when it closed last month, according to figures released this week. The fact that the ECB did not even manage to buy half of what it had planned was nevertheless welcomed by supply-starved investors and dealers who claimed its actions had exacerbated the illiquid and technically-squeezed core markets on which purchases were focussed.

A £250m covered bond from Deutsche Pfandbriefbank puzzled rival bankers on Tuesday when it priced inside UK names in sterling after being driven by reverse enquiry from Asian investors, who accounted for nearly half the book.

Sparebank 1 Boligkreditt printed only the second seven year dollar covered bond since 2007 on Wednesday, pricing 2bp inside where Stadshypotek brought the first in September but with a modest new issue premium. Separately, the issuer said that its covered bond encumbrance was at the lower end of the Norwegian spectrum.

Crédit Mutuel CIC mandated joint leads Citi, Barclays, BNP Paribas, Goldman Sachs and JP Morgan for its debut dollar denominated covered bond on Thursday.

Dexia Group will fully dispose of its French municipal financing entity, Dexia Municipal Agency (DexMA), it revealed on Thursday, when releasing third-quarter earnings. In outlining its new structure, it clarified that Dexia Crédit Local (DCL), belonging to the Brussels based Dexia SA Grioup, would no longer be a shareholder of DexMA.