Covered Bonds

ING DiBa was assured of a very strong response to its Pfandbrief, given that the market has had just €1.5bn of supply in 2012 year, which is billions below scheduled redemptions. Its deal on Tuesday was the fourth €500m sized benchmark from the region this year. ING is well regarded and the deal was well prepared — enabling it to price very closely to where its much larger peer, Deutsche Bank, had been trading and at the tightest level for any covered bond this year.

The covered bond market ended the week in exceptional shape. Société Générale’s €1.5bn seven year benchmark was trading 10bp tighter in the secondary market on Friday, after pricing at 107bp over mid-swaps on Thursday. Though some syndicate bankers said the trade was priced through the issuer’s outstanding curve and had been a strong success, other felt initial guidance had been too wide.

The covered bond market remains extremely well supported, with recent deals all performing well and secondary flows largely one way. Commonwealth Bank of Australia and Toronto-Dominion have mandated for dollar trades. Yorkshire and Coventry Building Societies have left blackout but could turn to sterling. Bankinter has mandated in euros but is biding its time while Cédulas spreads tighten. ING DiBa is expected soon after roadshowing last week.

The Norwegian Covered Bond Council is trail blazing the Covered Bond Investor Council’s transparency initiative with a data template that sets a great example. Not only does it go well beyond the initial wish list, it also provides additional collateral pool information that until now had not been published by Norwegian issuers.

Société Générale was criticised for overly generous guidance in its recent seven year trade, though syndicate leads said the deal was priced through the borrower’s outstanding curve. With the secondary dominated by bids and buyers baying for fresh paper, SG’s 120bp starting point on Thursday was labelled 10bp too wide.

Credit Suisse attracted a staggering 168 investors for its $2bn three year trade, more than double the interest recent Canadian dollar benchmarks have enjoyed, and it still had to leave some prospective buyers empty handed. The three year 144a/RegS trade was increased from the original $1bn target print on the back of huge demand, and was priced through the secondary curve of Swiss peer UBS on Thursday evening.

The US dollar covered bond market ended its washout since January this week as a pair of Canadian and Swiss names closed $3.5bn of new issues after attracting over $8bn of demand.

While the European Central Bank’s second long term refinancing operation further boosted what was already a very well bid covered bond market, bankers questioned the rally’s sustainability this week.

Société Générale was criticised for pricing its new covered bond too generously this week — even though the bank brought the deal through its curve. Market participants suggested SocGen could have gone tighter by taking advantage of buyers baying for fresh paper and a well bid secondary market.

Covered bond dealers continue to see significant buying in one year to five year bonds amidst reports that a central bank has been aggressively lifting offers in both core and peripheral covered bonds on Thursday.

Société Générale built a €6bn book for its second trade of 2012 on Thursday, pricing a €1.5bn benchmark well inside initial guidance. Meanwhile, Credit Suisse launched only the second dollar trade from a European bank since last September.