Covered Bonds

In the absence of primary supply, the Spanish banking sector continued to provide the focus of attention in the covered bond world this week. With Spanish banks facing around €200bn of Cédulas redemptions until the end of 2015, and access to the capital markets firmly closed, noteholders have become increasingly tetchy over their exposure — in contrast to the Irish covered bond market.

The senior claims of holders of covered bonds will not be immune from the new bank bail-in proposals, bankers told The Cover after the European Commission released its bank resolution proposals this week.

Spain and its banking sector continue to be the centre of attention. Bankers widely believe that a restructuring drawing on the existing European bail-out fund is the only credible solution — but despite no sign of this happening, sentiment has improved. After heavy selling, better Cédulas buying emerged on Wednesday, particularly for strong single names. Yet, with Spanish banks facing around €200bn of Cédulas redemptions until the end of 2015, the sustainability of the bank sector and longer-term outlook for spreads, remains in doubt. By contrast, Irish bonds look set to perform.

In the absence of primary supply, the Spanish banking sector continued to provide the focus of attention in the covered bond world this week. With Spanish banks facing around €200bn of Cédulas redemptions until the end of 2015, and access to the capital markets firmly closed, noteholders have become increasingly tetchy over their exposure — in contrast to the Irish covered bond market.

The recent run of Pfandbriefe looks set to continue, with at least two more German credits closely monitoring the market. Meanwhile, a rally in OATs combined with an enduring domestic bid mean the first French covered in two months could be only days away, said syndicate bankers.

Suncorp Bank could turn to the euro market for its next covered bond trade after launching an inaugural deal in Australian dollars this week. Meanwhile, both tranches of Clydesdale Bank’s domestic debut were trading tighter on Friday morning. But though the borrower said it will be a repeat issuer in the covered market, the euro basis swap will consign it to sterling for the time being.

Clydesdale Bank sold a long awaited 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 £1.1bn dual tranche trade.

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.