Covered Bonds

Bank of New Zealand priced a €500m three year deal this week, only two weeks after it was forced to postpone a five year trade in the same currency. The shorter maturity and capped deal size yielded a far more positive result, with over 100 accounts contributing to an order book that was three times covered.

Prospects for the birth of a Belgian covered bond market have taken a leap forward with the recent formation of a new government after a year and a half of political deadlock. Market participants say that the chance of a covered bond law in the country is finally looking stronger.

The strength of the Long Term Refinancing Operation rally was on vivid display this week as Santander shrugged off a heap of negatives to rack up one of the largest ever order books for a covered bond. Despite its flop last time out, a poorly received recent asset liability management (ALM) exercise and the cédulas sector’s eight month washout, the €2bn benchmark restarted Spanish supply in stellar fashion on Wednesday — and paved the way for more risk-on deals.

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

ANZ Bank hit the Swiss franc covered bond jackpot for the second time in two weeks on Thursday when its New Zealand subsidiary issued a Sfr500m dual tranche note. The market’s first Kiwi covered bond followed the parent’s blowout Sfr750m debut on January 20.

The secondary market in short dated covered bonds is in danger of breaking, and though it is not there yet, there are concerns over ‘forced delivery squeezes’ in the repo market which may lead to failed trades.

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.