Covered Bonds
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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.
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Iceland’s Arion Bank sold Ikr2.5bn (€15m) in its first covered bond auction since the issuer was created from the Icelandic arm of Kaupthing Bank in 2009.
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Short dated covered bonds from smaller Italian or Spanish banks are possible this week, bank originators told The Cover on Monday, as risk appetite rises on hopes of a Greek aid decision.
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Moody’s on Thursday followed its recent sovereign rating actions by placing 39 covered bond programmes across 10 European jurisdictions on review for downgrade. Austrian, Danish, Dutch, Finnish, French, German, Italian and Spanish programmes were put on review, after the rating agency took the same action on the respective issuer’s senior debt ratings.
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After softening in the first part of the week, sentiment improved on Thursday afternoon on the expectation that a Greek deal will be struck over the weekend. Activity was mainly concentrated in the two to five year area, and though clients are looking for offers, dealers are generally seeing mixed two way flows across the board. The long end is inactive, but dealers expect renewed interest in the event 10-year yields back up towards the 4% area.
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Nykredit will begin the first Danish auction of 2012 later this month, selling an estimated Dkr115bn (€15.4bn) between February 27 and March 12. The traditional one year adjustable rate mortgage bonds will make up the bulk of the auction, though with the low yield environment borrowers have moved along the curve.
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Swiss franc denominated Australian covered bonds remained in vogue this week, with Commonwealth Bank of Australia issuing the largest one yet — a Sfr775m dual trancher — on Wednesday, after Australia and New Zealand Banking Group paved the way for its peer group with a Sfr725m icebreaker in January. However, bankers wondered whether the market could continue to support such deals and whether CBA’s deal would in fact be the high water mark for Australian covered bonds in Swissies.