Covered Bonds

CaixaBank’s €1bn five year offered further proof of returning confidence in the Cédulas market. The deal attracted another large, regionally diverse book, enabling the issuer to print without a new issue premium.

Westpac’s inaugural euro denominated trade was a blow-out success, with orders swelled by demand from Germany and from banks. But an unreconciled book of approaching 140 investors from around the world has also made it very granular. Despite this success, and the fact that the funding door remains firmly open for other issuers, the primary outlook may start to slow, bankers believe.

Westpac has mandated Barclays Capital, Citi, Deutsche Bank and itself for its inaugural euro benchmark. Leads are expected to open book for the four year on Thursday, subject to market conditions. Five year NAB and CBA trades, that were launched earlier this year at mid-swaps plus 100bp, are bid at 74bp and these are likely to provide the best reference.

Banesto has become the first Spanish bank this year to move away from three year funding, selling a long four year Cédulas on Tuesday. The no-grow €500m trade attracted enough demand for a jumbo print, but this deal was about sending a signal to the market and investors, and not about meeting long-term funding requirements.

The covered bond primary market remains on fire with deals from the UK’s Abbey National in sterling and Spain’s Caixabank in euros, quickly oversubscribed — allowing leads to move guidance towards the tight end without fear of losing orders. But accounts that had driven the short end of the secondary market tighter since the start of the year are now taking profit, or at least losing interest in adding to their positions — hinting that current euphoria may reach its limit before long.

The European Central Bank’s long term refinancing operation has been put to good use by the European banking sector. But its lack of discrimination raises dependency and, longer term, increases systemic risks.

The European primary covered bond market continues to go from strength to strength as an emboldened senior unsecured sector breeds confidence in overall bank funding. This was most visible in the book build for Banesto’s Cédulas on Tuesday. Demand for Spanish paper shows no sign of diminishing, despite more than €3bn of Cédulas issuance in the last week. There is more conspicuous profit taking in the secondary market, but after the last fortnight’s one-way street, bankers sees this as a positive development.

BPCE convinced more than 140 accounts to participate in the first French trade of 2012 not to tap the long end of the curve, with a huge bid from asset managers unable to buy short dated paper providing added granularity. The BPCE group has issued over €3bn so far this year — around 25% of its covered bond funding plan, though it aims to be active throughout the year.

Banco Sabadell’s €1.2bn three year demonstrated that Spain’s second tier of borrowers has regained market access. With many Spanish banks waiting for the rating consequences of new banking groups and mergers, a benchmark gives rating agencies a timely display of credit strength.

For the first time in Denmark, non-affiliated institutions will pool their mortgage loans to issue covered bonds.

Austria’s Bawag has invited holders of its €1bn 4.25% 2014 to tender their notes and is willing to buy up to €500m at a spread of mid-swaps plus 55bp. The offer is unusual for being the first covered bond tender from a borrower in core Europe and the first which targets bonds that trade above par.

BPCE launched the first French five year trade of 2012 on Monday, into a market still desperate for new supply across the curve.