Covered Bonds

Austria’s Hypo Noe Gruppe Bank took advantage of a slim issuance window on Wednesday to launch a highly popular 10 year public sector covered bond. The week’s only euro benchmark was Hypo Noe’s longest trade yet, and the latest in a string of heavily oversubscribed long dated covered bonds.

Länsförsäkringar Hypotek became the first Nordic issuer to tap the Swiss franc market in covered bond format this year when it priced a Sfr175m seven year note on Thursday. However, with pricing still not meeting larger Nordic financials’ targets, market participants do not expect a flurry of covered bond supply out of the region to follow.

The UK’s Skipton Building Society tapped into unrelenting sterling demand for UK prime RMBS and built a heavily oversubscribed book for £450m of the senior notes of Darrowby No 2. Though the borrower has a £5bn covered bond programme, it has only ever been used for emergency central bank funding. Its second RMBS deal pays testimony to the fact that securitisation is better for funding weaker banks than covered bonds. Meanwhile, Santander eschewed the covered bond market for an RMBS deal announced on Wednesday.

Austria’s Hypo Noe Gruppe Bank convinced almost 100 investors to participate in its longest covered bond to date. It does not intend to issue another public sector trade this year, but told The Cover it is setting up a mortgage cover pool to fund its residential loans through covered bonds.

Barclays took year to date dollar benchmark covered bond supply to $24bn with a hugely successful 144A/RegS $2bn five year trade. Panama’s Global Bank has also opened books on its inaugural dollar deal, though given the transaction’s unique structure it is likely to take longer than the typical covered issue.

Hypo Noe has announced a €500m no grow 10 year public sector Pfandbrief on guidance of mid swaps mid 90bp area. Nykredit Realkredit finished roadshowing its first euro benchmark junior covered bond on Tuesday. Panama’s Global Bank is ready to bring its $200m inaugural deal. and DVB Bank might be expected to launch a Ships Pfandbrief before long.

Mortgage funding is being squeezed by a pincer movement of covered bond encumbrance and overzealous ABS regulation. But what about whole loan sales? They offer a viable alternative to covered bonds and securitisation — and one that looks increasingly attractive.

The regulatory backdrop for covered bonds was always good, but following an analysis of the draft Solvency II regulations by Fitch, it seems that preferential treatment has got even better. The benevolent view of covered bonds contrasts starkly with securitisation, where regulators inexplicably chose to model the performing European market on the dysfunctional and defunct US subprime market.

Austria’s Hypo Noe Gruppe Bank took advantage of a lone issuance window on Wednesday to launch a strongly oversubscribed public sector backed 10 year trade. The rarity of the issuer, the quality of the collateral and the relative resilience of Austrian Pfandbriefe to recent volatility made the trade compelling. Falling Pfandbrief supply in the primary and public sector buybacks in the secondary, meanwhile, have increased appetite for a shrinking asset class.

Nykredit Realkredit on Tuesday finished a roadshow for its first euro benchmark junior covered bond since 2010. Some continental buyers are unfamiliar with the structure, and past deals have been priced far closer to senior than covered levels. However, Denmark’s largest mortgage lender rarely issues in euros, and a high spread and lack of alternative investment opportunities could draw a healthy mix of credit and rates buyers.