Covered Bonds

UniCredit Bank Austria launched its first benchmark covered bond this year, selling a twice oversubscribed €500m no grow trade on Wednesday. The second public sector backed Pfandbrief in as many days was priced in line with revised guidance, attracting almost 100 accounts.

Landesbank Hessen-Thüringen (Helaba) sold Germany’s first jumbo covered bond in almost a year, and the first public sector backed benchmark of 2012. It also enjoyed the largest foreign participation in any German deal this year, and told The Cover it could return with a second trade if conditions are favourable.

Germany’s Helaba broke ranks with cautious covered bond issuers on Tuesday to launch the first euro benchmark trade for two weeks. The rare borrower found strong demand for a €1bn public sector backed transaction, and another deal out of core Europe is expected on Wednesday, said syndicate bankers.

Denmark’s Nykredit Realkredit will launch a new mortgage funding model this quarter, in an attempt to lower its covered bond issuance costs in an environment of falling house prices.

Hopes for imminent covered bond issuance dimmed on Monday as the asked for stability proved elusive. With government spreads still widening and background volatility persistent, even top issuers will have to offer positive new issue premiums to compensate buyers, said syndicate officials.

The European covered bond market is stabilising on Friday, with buyers reported in French and Scandinavian names. But the Spanish market remains shaky, and though selective bids returned the macro sovereign backdrop deteriorated after Thursday's brief impovement.

Pfandbriefbank sold a Sfr435m ($474.4m) triple tranche bond on Thursday via Deutsche Bank, UBS and Raiffeisen Bank that included a new 15 year deal and two taps. The former was priced in line with investor preferences thanks to a Swiss franc market saturated with long dated supply.

Covered bond supply should restart next week given a stable opening, said syndicate officials on Friday, and several issuers are looking to launch trades. But with upcoming elections in France and the market still full of uncertainty after the renewed volatility of early this week, headline risk could keep second quarter supply muted.

The value of collateral backing Cédulas and RMBS came under increased scrutiny on Thursday following the publication of Banesto’s first quarter results. Unlike in many jurisdictions, Spanish cover pools are not indexed to the declining value of house prices, with the result that they can quickly become overstated.

The covered bond rally that began in the first quarter of 2012 has stalled, with Italian, Spanish and French spreads coming under pressure in the secondary market. Some analysts recommended that investors prepare for further spread widening by moving out of peripheral paper. But syndicate officials said levels were simply correcting at the end of an overblown rally, and that technical factors would continue to support supply.

The value of collateral backing cédulas and RMBS came under increased scrutiny on Thursday following the publication of Banesto’s first quarter results. Unlike in many jurisdictions, Spanish cover pools are not indexed to the declining value of house prices, with the result that they can quickly become overstated.

Pfandbriefbank sold a Sfr435m ($474.4m) triple tranche bond on Thursday via Credit Suisse, UBS and Raiffeisen Bank that included a new 15 year deal and two taps. The former was priced in line with investor preferences thanks to a Swiss franc market saturated with long dated supply.