Covered Bonds

Tightening spreads and bulging order books since January have failed to lure German banks into issuance. The rate at which the banks are deleveraging and retreating from foreign markets has made financing through wholesale markets completely redundant. But they will still need to put their new balance sheets to work, and Fitch has questioned whether the domestic market is large enough to absorb this lending without mispricing.

Although the covered bond secondary market remains very well bid, the primary market is taking a breather as concerns over the Greek situation and Moody’s sovereign rating action weigh on sentiment. In that context, Catalunya Banc’s tender result, though modest, was definitely worthwhile for the issuer.

Despite a pause in primary supply, the secondary market remains very well bid and, driven by a scarcity of paper, offers are difficult to find. Investors have sought to take some profit at the very short end and move out along the curve in search of yield but turnover is limited.

Spain’s Bankinter and Bankia are expected to launch short dated trades later this week, after the primary market paused for breath on Monday. Cash rich investors with an appetite for risk should ensure they get a strong reception, but negative rating action could yet cause them to hold off.

Compagnie de Financement Foncier would have had to pay a 20bp new issue premium a few weeks ago but, in its most recent deal, it paid no premium whatsoever. Moreover, the deal attracted the largest book of any French benchmark, which has ensured a strong performance. Though in hindsight it could have probably priced tighter, it would not have earned much needed kudos for taking the last cent off the table.

The bullish market was again in evidence at the end of last week after CFF issued a €2bn August 2015 at mid-swaps plus 95bp on Friday. Though this was flat to its curve, the borrower attracted a €7bn book from about 270 investors.

Compagnie de Financement Foncier built one of the largest ever orderbooks for a French issuer on Friday, pricing a €2bn 3 1/2 year trade flat to its outstanding curve. Short end trades have flown regardless of name or jurisdiction, and syndicate banks said reverse enquiry for Italian borrowers has now started to build.

Westpac’s inaugural euro denominated trade was a blow-out, with orders pumped up by demand from Germany and from bank investors. It attracted a bigger book than the combined orders for the first euro deals from National Australia Bank and Commonwealth Bank of Australia.

The steady stream of oversubscribed deals from peripheral, core and non-European issuers were reflected in Crédit Agricole’s February covered bond sentiment index, which recorded an all-time high for investors. This does not, however, mean that investors’ fundamental view has changed – rather that the strength of the rally leaves them with no choice but to dive in, the research said.

In little over a week five Spanish banks have attracted over €17bn of demand from 847 investors, enabling them to raise a collective €6.7bn. Not bad for a market that was closed just a few weeks ago — and well beyond the wildest expectations.

Westpac on Thursday priced its inaugural euro denominated trade, a four year offering that attracted €4bn of orders and laid another important benchmark for the burgeoning Australian market.

In little over a week five Spanish banks have attracted over €17bn of demand from 847 investors, enabling them to raise a collective €6.7bn. Not bad for a market that was closed just a few weeks ago — and well beyond the wildest expectations.