Covered Bonds

Primary issuance is set for a bumper week next week, and bankers are predicting a deal a day as many issuers come out of blackout. Recent issuance from Spain and Austria underscores the growing impression that the Eurozone can sort out its problems.

When National Bank of Greece announced a buyback last month, many market participants felt it would be a one off. But soon after Portugal’s BPI launched its own tender and because that market is slightly bigger, bankers said a handful of issuers might well consider a similar exercise. Now Spain’s Caixabank has followed suit by announcing a tender. Given the large €360bn size of the Cédulas market, it’s fair to assume that the potential for ALM exercises is much greater than had previously been assumed.

Erste Group Bank comfortably printed €1bn off the back of the largest ever book for an Austrian covered bond on Wednesday. The successful 10 year offering has opened the door for other Austrian names and put to bed negative headlines following the sovereign’s recent downgrade.

Santander built potentially the largest ever order book for a covered bond on Wednesday, restarting Spanish supply with a stellar €2bn benchmark. The trade answered an investor base baying for three year paper after an LTRO induced drought, and a variety of issuers from in and outside the Eurozone could follow in its wake.

Erste Bank launched the first Austrian benchmark of 2012 on Wednesday. It was also the first Jumbo trade from the region since last May.

A day after Santander said it would not need to access wholesale markets this year, the bank surprised the market and broke the seven month cédulas drought with a blow-out €2bn three year.

Sparebanken Vest Boligkreddit priced the tightest Scandinavian deal of the year on Tuesday, and became the second issuer in as many days to enjoy the most heavily oversubscribed book of the year – being three times covered.

Sparebanken Vest Boligkreditt (SVB) uncovered €1.6bn of demand in one hour and priced the tightest Norwegian deal this year on Tuesday. Meanwhile, Erste Bank is looking to issue a new 10-year.

Bank of New Zealand convinced over 117 investors to participate in a three times oversubscribed trade on Monday. The surge of demand for the three year deal took leads by surprise, and market participants expect other non-European names to take advantage of investors’ hunger for the short end.

The ECB's Long Term Refinancing Operation could increase the bid for covered bonds through its restorative effect on the senior unsecured market.