Covered Bonds

Waning euro primary issuance has been counterbalanced by a pick-up in overseas markets with issuers raising €5bn equivalent in three currencies in the last 24 hours. The Bank of Nova Scotia raised $3bn with a three tranche trade, Australia and New Zealand Bank issued its inaugural deal in Aussie dollars and the UK’s Yorkshire Building Society unearthed robust demand in its domestic market for the first UK four year floating rate deal.

FIG investors shrugged off concerns about Spain’s fiscal stability this week, picking up five year paper from Bankinter and – in what was the first senior deal from a Spanish bank with a tenor outside the three year term – from Santander. The trend was also mirrored in the SSA sector, with buyers piling into paper from Ico, Madrid and the sovereign itself.

Fitch's exposure draft on swap counterparty risk in covered bond programmes suggests that covered bonds issued by strong banks that use complex internal swap arrangements will be seen as potentially less robust than those from weaker banks with external swap arrangements.

Hungarian central bank (Magyar Nemzeti Bank) proposals to allow universal banks to issue covered bonds so that they can take advantage of a second planned purchase programme threaten to water down the country’s existing , strong framework, warned bankers.

Australia and New Zealand Banking Group looks set to become the third Australian borrower to issue in its domestic currency this year. It has mandated JP Morgan Australia, National Australia Bank, Westpac and itself for a four year fixed and floating rate covered bond.

Investors this week gave another sign of their increased willingness to take on risk by lapping up a five year Spanish Cédulas deal from one of Spain’s smaller financial institutions, Bankinter. The deal was the first from Spain since February 22 and the bank’s first funding since January last year. What stood out was not the size and pricing, but also the tenor.

FIG investors shrugged off concerns about Spain’s fiscal stability this week, picking up five year paper from Santander in what was the first senior deal from a Spanish bank with a tenor outside the three year term of the ECB’s long term refinancing operation (LTRO) since the measure was introduced last December.

BNP Paribas made negative new issue premiums a reality this week, pricing a hugely oversubscribed 10 year covered bond through its outstanding curve on Thursday. The result underscored the rapid tightening in French spreads over recent months back towards their 2011 levels.

The year’s first euro benchmark from a Swedish issuer was rewarded with the largest ever order book for a Nordic covered bond this week. After Stadshypotek attracted around €4bn of demand on Wednesday, allowing it the tightest launch spread for a Swedish issuer in four years, analysts expect other names from the country to end their long absence from the currency soon.

DNB Boligkreditt’s €2bn 10 year covered bond on Tuesday showed yield-hungry investors’ willingness to give ground for the right name from the right jurisdiction, bankers said. The strength of demand allowed the issuer to price its jumbo well through a recent shorter offering and still leave appetite unsated.

Australia and New Zealand Banking Group looks set to become the third Australian borrower to issue in its domestic currency. ANZ has mandated leads for a four year dual tranche, fixed and floating rate benchmark. Westpac has issued its first deal denominated in Swiss Francs

BNP Paribas priced a heavily oversubscribed 10 year trade through its outstanding curve on Thursday, opening the door to a world of negative new issue premiums.