Covered Bonds

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.

The UK’s Clydesdale Bank has finished a domestic roadshow and could launch an inaugural benchmark mid-week after receiving final investor feedback on Tuesday. Australia’s Suncorp Bank, meanwhile, is expected to announce a formal mandate for its own domestic debut later in the week.

Two weeks ago, the markets were full of talk of the disrespect that 3CIF had shown bondholders by keeping them in the dark as to why its bonds had been suspended. But this week Moody’s is the villain.

The prospect of wind farms backing covered bonds emerged this week in a discussion paper from the Climate Bonds Initiative. Although most European jurisdictions confine eligible asset pools to mortgages and public sector loans, cashflows from turbine-generated electricity could provide ideal collateral, the not-for-profit organisation argued

The focus of attention on the secondary covered bond market in the last 48 hours has been firmly on the sovereign market — and France in particular. A 20bp tightening in the 10 year OAT on Thursday and a short lived tightening again on Friday has left French covered bonds looking cheap. But uncertainty is high, bid-offer spreads are wide, clients are sidelined and dealers are looking to pare back inventory.

A phenomenal reception for three Pfandbrief benchmarks this week has raised hopes that fresh German trades will maintain primary momentum next week. Meanwhile, French sovereign and agency paper has tightened strongly in secondary.