Covered Bonds

Barclays sold a hugely successful 144A/RegS $2bn five year trade through leads Barclays, Citigroup, HSBC and UBS. But the inaugural deal from Panama's Global Bank was postponed. UK issuers have turned to RMBS.

The Russian mortgage market has grown quickly, lifting prospects for fledgling covered bond issuance. However, despite being Ucits eligible and in line with the European Covered Bond Council’s Label definition, the country’s legal framework is not yet aligned with western Europe’s.

Berlin Hannoversche Hypothekenbank (Berlin Hyp) and Dexia Kommunalbank Deutschland (DKD) have bought back a combined total of over €3.5bn in public sector Pfandbriefe across 14 outstanding trades. As well as providing a precedent for other public sector lenders to follow, the buybacks should help tighten German Pfandbrief spreads in the secondary.

Despite the holiday shortened week, activity in the secondary covered bond market has been relatively good. Though not all houses attest to seeing flows, some banks have seen quite a lot. German and Scandinavian markets are very well supported, the UK has performed very well, France is mixed and Spain is offered.

With asset encumbrance fears hanging over the covered bond market and heavy handed regulation threatening to kill off the ABS market, mortgage funding is under pressure like never before. But a third way might be emerging, in the shape of whole loan sales.

Barclays took year to date dollar benchmark covered bond supply to $24bn with a well oversubscribed 144A/RegS $2bn trade. Panama’s Global Bank, however, has postponed its inaugural dollar deal, which would have been Latin American’s first covered bond.

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.