Covered Bonds

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.

Sparebank 1 Boligkreditt on Monday returned to the euro market for the first time since January. The rare borrower priced a five 1/2 year benchmark many times cheaper than where it sold a longer trade at the start of the year, exemplifying the sustained tightening in core covered spreads.

The covered bond market is gearing up to restart next week, said syndicate bankers, who expect at least two benchmark trades to hit the screens. German and Scandinavian borrowers are tipped as the most likely candidates to take advantage of squeezed secondary levels. But with no end to spread contraction in sight, the urge to wait and watch levels grind tighter could cause some borrowers to hold off.

UniCredit made history on Tuesday when it priced a €750m covered bond at almost 100bp through Italian government debt, crashing through the sovereign pricing floor that has existed until now in the asset class.

After the drama and excitement of UniCredit pricing through BTPs, the European covered bond market has returned to normal — only to be outshone by senior unsecured, where three deals are on the way.

The Cover spoke to HVB’s Holger Oberfrank, head of flow and funding, and Thomas Neupert, head of public sector origination, about its issuance plans for this year, and the outlook for Pfandbriefe.