Covered Bonds

Strong core issuers can look forward to zero concession on their new benchmarks, if any decide to pull the trigger. Lesser names should still require a premium to price a successful trade, but with spreads moving tighter concessions are falling across the board.

Nationwide spurned the euro market again and instead turned to the US and UK for its first RMBS deal of the year. Taking account of the two year longer maturity, the funding level was tighter compared to its recent sterling covered bond and illustrated the US market’s greater familiarity with ABS in general and UK deals in particular.

Portugal’s Caixa Geral de Depósitos (CGD) bought €908m of its own covered bonds, representing 29% of the outstanding. This is the second highest take up of a covered bond tender and well above the level that the borrower had aimed for. Millennium BCP’s tender, due next week should have an equally strong result.

Westpac New Zealand came back for a second helping of its debut Swiss franc covered bond on Tuesday, increasing the deal by Sfr50m on Tuesday morning amid a quiet market.

Although the technical market backdrop continues to look strong, fundamental concerns lurk just below the surface. In the last 48 hours both Pimco and the prime minister of Luxembourg have raised concerns about the outlook for Greece and the rest of Europe. Against this backdrop, German Pandbriefe cover pools are still exposed to peripheral Europe, latest analysis shows.

Top tier names can offer zero premiums on primary trades but lower ranked issuers have no such luxury, syndicate officials told The Cover on Monday.

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.