Covered Bonds

BPCE mandated leads for a February 2018 covered bond on Tuesday. And though others borrowers are in the pipe, activity is not expected to be as busy as last week.

This is an edited version of The Cover’s Awards Presentation in Munich last week. It includes the winners and runners up, and an explanation of the methodology behind the choices.

Things started out so well at The Cover’s annual awards dinner in Munich last Thursday. The covered bond community turned out in force, with the winners graciously and soberly accepting awards on stage. But that sobriety couldn't last, of course.

BPCE has returned to the covered bond market for the second time this year to issue a long dated five year. The transaction was priced with a negligible new issue premium and was broadly distributed to high quality accounts. Though clearly a successful trade, it lacked the sparkle of other higher yielding transactions.

After the flurry of covered bond deals seen last week market participants had anticipated that there would be some follow through on Monday. Though it is likely that primary issuance will be seen this week, the supply outlook is likely to remain generally muted over the longer term.

Despite the generally gloomy market conditions that have prevailed for the last year, the German covered bond market has performed well. Though it was feared that tight spreads would sap demand, the need to stay fully invested and be protected against capital erosion has fuelled the market, said panelists at the Euromoney covered bond conference in Munich on Thursday.

The primary covered bond market finished last week in a positive state with as many as nine issuers from six jurisdictions raising as much as €8.5bn across two currencies, on the back of €16.7bn of demand spread across more than 900 orders. Given this superbly constructive backdrop, it is possible that other issuers will be looking to bring deals. For, as history shows, only the nimble footed can be rewarded by the fleeting funding windows that have characterised the markets for much of this year.

Winners of The Cover’s 2012 Covered Bond Awards were revealed on Thursday night. See the full list of awards below.

Covered bond investors are getting more sophisticated and increasingly prefer to undertake their own analysis. Nevertheless, because ratings are hardwired into investment mandates, as well as regulations, it is an inescapable fact of life that they will remain a major spread driver – said panelists at a Thursday’s Euromoney covered bond conference in Munich.

Belgian investors awaiting the first covered bonds from the country have warned that the new issues will need to offer an attractive pick up over sovereign spreads to secure the domestic bid. But since the Belgian bid for euro benchmarks is small, this may not necessarily pose a much of a problem.

Royal Bank of Canada has priced the first SEC registered covered bond, a $2.5bn deal that is likely to be the landmark US dollar trade of the year for the asset class. The long awaited issue was notable for the breadth of investor demand, its historically low coupon and exceptionally tight spread, writes Bill Thornhill.

New Zealand’s ANZ National launched its second ever euro benchmark covered bond on Tuesday, finding strong demand for a €750m five year deal.