Covered Bonds

Münchener Hypothekenbank (MuHyp), HSH Nordbank and Deutsche Bank this week became the latest covered bond issuers to take advantage of surging demand for German assets against a swiftly deteriorating backdrop.

Volatile markets have clearly helped drive the bid for all German assets — as was most conspicuous when Münchener Hypothekenbank issued its 10 year Pfandbrief this week.

Clydesdale Bank sold a debut benchmark covered bond on Thursday, which was originally mandated in 2010. The borrower opted to take its first step in sterling, and took advantage of demand at both ends of the curve with a well placed dual tranche trade.

Deutsche Bank delivered the week’s third German Pfandbrief benchmark on Thursday, matching Münchener Hypothekenbank’s record low coupon for a 10 year trade a day earlier. Together with HSH Nordbank’s trade on Wednesday, German credits have sold six euro deals in a row, and the pipeline of potential Pfandbrief is not yet exhausted, said syndicate bankers.

Australian lender Suncorp-Metway is eyeing European investors for its next covered bond, after making a successful debut in the domestic market this week.

Australian lender Suncorp-Metway sold its debut covered bond on Wednesday, raising A$1.6bn ($1.56bn) after adding a short-dated tranche that boosted the deal to more than double what the bank was initially aiming for.

With the macro backdrop swiftly deteriorating, German issuers have been quick to take advantage of the flight to safety bid. As many as five German borrowers have priced Pfandbriefe in the last two weeks, with Münchener Hypothekenbank (MuHyp) and HSH Nordbank issuing comfortably oversubscribed deals on Wednesday. MuHyp’s deal was the most remarkable, not only for its tight pricing, but for the large ex-German placement.

Santander UK has added a double-A rated dollar tranche to Holmes 2012-3 and will price what is now a two tranche deal on Wednesday afternoon.

Australian lender Suncorp-Metway is planning its covered bond debut, which will be a dual tranche deal drawn from a $5bn global covered bond programme.

Australia’s Suncorp Metway has mandated leads for its inaugural Australian dollar deal which is set to be priced overnight. In Europe, Münchener Hypothekenbank has followed the trail of German issuers and announced a mandate, while the UK’s Clydesdale is also poised to press ahead with a sterling deal.

After Rabobank raised €763.5m of two year and five year funding through its Obvion subsidiary’s Storm 2012-3 RMBS, Santander UK announced the mandate on Tuesday for a third deal off its Holmes RMBS platform. The transaction comes just two weeks after Santander UK raised £2.25bn through its first Fosse deal of the year.

Activity in the secondary market has been blunted by the travails of Spain which continues to steal attention. As sovereign bond yields continue to rise, bids for peripheral covered bonds have become increasingly scarce. And with the ECB unwilling to countenance a resumption of bond purchases, the near term outlook is expected to remain dim.