Covered Bonds
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Caisse de Refinancement de l’Habitat launched a €1.75bn 12 year benchmark on Monday. Though this was its second long dated deal this year and the sixth such French benchmark this year, there has been no long euro benchmark issuance since February 1 and as such, the market was desperately in need of this paper.
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The covered bond market finished last week in a broadly positive shape, but the take up of Tuesday’s Long Term Refinancing Operation and the Greek Private Sector Initiative could play a pivotal role in determining sentiment for months to come.
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The European covered bond market looks set to perform well as the forces of supply and demand exert their influence. The senior unsecured market has diminished scope for covered bond issuance, frustrating investors who are underweight. Despite that, there are high hopes that an Italian and Spanish deal will surface soon – and there is even talk of Portuguese deal later in the year.
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The supply-starved covered bond market highlighted its increasing credit polarisation this week with both its tightest and widest deals of the year. 2012’s lowest rated covered issuer, Spain’s Bankia, got an inaugural public transaction away at 290bp over mid-swaps despite recent Cédulas downgrades, while rare issuer Deutsche Bank attracted more than €2bn of orders in under an hour for what bankers described as a "cheap Bund" at 22bp over.
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The inaugural public benchmark from Spain’s Bankia boasted the highest spread and shortest tenor of any deal this year. It now plans to return with a longer dated trade, building on the strong demand it found for Wednesday’s deal.
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Deutsche Bank pulled in more than €2bn of orders for the third German Pfandbrief of 2012. Leads priced the €500m no grow trade at 22bp on Wednesday, making it the tightest trade of the year so far, and the bond tightened further in the secondary market on Thursday.
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The tightest and widest transactions of 2012 were priced on Wednesday, with Bankia launching a two year Cédulas at 290bp over mid-swaps, while Deutsche Bank priced a blow-out seven year trade at 22bp over mid-swaps.
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Bankia restarted primary supply on Wednesday, opening books on a two year €500m trade that could easily have been increased on the back of strong demand, according to syndicate leads. Though the settlement date means the bonds cannot be used in the second Long Term Refinancing Operation, the deal still attracted interest from across the Eurozone. As the lowest rated issuer to tap the covered bond market this year, Bankia’s success could prompt other lower tier names to follow.
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Bankers and lawyers have warned against over-interpreting the effects of imminent US legislation on covered bonds from the UK and elsewhere. The proposed US law may not hit covered bond structures that use SPVs, as industry bodies fear, they told The Cover.
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NAB subsidiary Clydesdale bank has priced an euro denominated RMBS 50bp wider than where NAB issued a floating rate sterling covered bond.
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The covered bond market remains primed for deals, but buyers are waiting to gauge the US response to the second Greek bail-out agreement, bankers said on Tuesday morning.