Covered Bonds

Nykredit Realkredit kicked off the Danish auction season this week, selling one and three year covered bonds with lower absolute yields than ever before. One year bonds will dominate the auctions as mortgage borrowers continue to prefer one year adjustable rate loans, though mortgage lenders are trying hard to push them into longer maturities.

Another milestone was set in the development of the sterling covered bond market this week when Commonwealth Bank of Australia became the first foreign issuer to price an ultra-long dated covered bond — and only the second non-domestic borrower to issue in sterling, writes Bill Thornhill.

Sparebank 1 Boligkreditt sold its tightest ever five year covered bond on Monday. The borrower has launched trades in euros, dollars, Norwegian kroner, and is monitoring the growing sterling and Australian dollar markets, chief executive Arve Austestad told EuroWeek.

The core covered bond market leapt back into life this week with a trio of euro jumbos from Dutch and Nordic issuers. But despite spreads hitting 2008 levels in some jurisdictions, many borrowers turned to the senior market first.

Danish mortgage lenders will benefit from a new best practices aimed at limiting the sale of variable rate and interest only mortgages, said Moody’s on Thursday. The rating agency report came as yields on Nykredit’s one year adjustable rate bonds hit fresh lows, making short dated variable rate mortgages even more attractive.

SNS Bank returned to the covered bond market on Thursday for the first time in almost two years, having aborted a deal earlier in the year. The issuer enjoyed a strong reception for its second attempt at a €1bn five year trade, which offered a double digit new issue premium and a huge pick up over Dutch peers ABN Amro and ING.

Commonwealth Bank of Australia has become the second Australian bank to issue a sterling covered bond and the first to issue in the long end. On Thursday it mandated joint leads RBS, Royal Bank of Canada and itself for the benchmark, which is due to be priced shortly.

Nykredit Realkredit kicked off the Danish auction season on Wednesday, selling one and three bonds with lower absolute yields than ever before. One year bonds will dominate the auctions, though mortgage lenders are trying hard to push borrowers towards longer dated loans, to smooth out maturity profiles ahead of Basel III.

This week’s two covered bond deals have helped increased activity in secondary markets, traders told The Cover. There has been selling pressure in the senior unsecured but this has only translated to more mixed flow in covered bonds.

Sparebank 1 Boligkreditt sold its third covered bond benchmark of the year this week. It has launched trades in euros, dollars, Norwegian kroner, and is monitoring the growing sterling and Australian dollar markets, chief executive Arve Austestad told The Cover.

Covered bond issuers proved reluctant to follow ING’s lead and launch trades on Tuesday, as activity shifted to the senior market. But given the strong reception for secured issuance syndicate bankers remain confident of supply later in the week.

ING helped restart the market once again on Monday, launching the first benchmark from core Europe in almost a month. Despite an unusual eight year tenor buyers flocked to take down fresh supply, placing €3.5bn in orders for only the fourth Dutch benchmark of 2012.