Covered Bonds

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.

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.