Covered Bonds

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.

Banco Sabadell brought the first deal in nine months from a second tier Spanish issuer on Monday. Rather than wait for a second round of ECB long-term refinancing operation (LTRO) funding, the borrower opted for a more expensive funding option to show the market and rating agencies that it still has wholesale access.

Coventry Building Society followed Santander into the short end on Friday, launching a three year sterling floater – the fourth sterling deal in this format since the start of 2012.

The formation of a Belgian government in December 2011, breaking a year and a half of political deadlock, has improved the chances of Belgium’s covered bond law finally being approved.

Bankers are increasingly bullish on the market outlook, with some predicting a deal a day next week. Issuers are leaving blackout and a string of successful trades across the curve has demonstrated the supportive backdrop. Coventry Building Society is aiming to price a three year sterling trade today, and two more peripheral tender offers have been announced.

Spain’s Catalunya Banc and Italy’s Cassa depositi e prestiti (CDP) are the latest issuers to announce tenders, though CDP is winding down its cover pool rather than attempting to bolster capital. A successful exercise for Catalunya could prompt other Spanish issuers to follow suit, though covered bond analysts said investors have been unwilling to let go of Cédulas in the secondary.

In a flurry of activity that offered another glimpse of the spare cash washing around the European banking sector after the ECB’s first Long Term Refinancing Operation (LTRO) in December, Spain’s CatalunyaCaixa and Banco Popular Español launched tender offers this week, buying back ABS, covered bonds and hybrids.