Covered Bonds

The Basel Committee this week reaffirmed its commitment to push ahead with the introduction of the liquidity coverage ratio by 2015. By that date banks will have to have set aside the requisite amount of capital in assets that the committee deems to be liquid.

Having aimed for a maximum €2bn deal, Nordea Bank Finland ended up printing an even larger trade after its July 2017 drew €3bn of demand. The €2.25bn deal, increased off the back of ECB Covered Bond Purchase Programme participation, is the largest Nordic covered bond ever.

The Association of German Pfandbrief Banks (vdp) has begun publishing indicative jumbo Pfandbriefe spreads following calls for greater price transparency from smaller institutional investors. At the same time the vdp has widened the definition of jumbo Pfandbriefe.

The covered bond primary market continues to enjoy good momentum, with as many as four issuers collectively raising the equivalent of around €5bn in the four to 12 year area across two currencies.

Australia and New Zealand Banking Group, Aareal bank and Compagnie de Financement Foncier successfully raised a collective €2.5bn on Monday, opening the way for Deutsche Pfandbriefbank, Nordea and Credit Mutuel-CIC - which are expected to launch and price deals on Tuesday.

Crédit Mutuel-CIC Home Loan has launched the longest dated euro trade of 2012, a 12 year aimed at German and French buy and hold investors.

Germany’s Aareal Bank launched the first Pfandbrief of 2012 on Monday, targeting a no-grow €500m four year transaction. With the deal size fixed, the issuer prioritised pricing, managing to defy bankers’ expectations and price inside guidance of 60bp area — and inside the curves of other second tier German issuers.

Australia and New Zealand Banking Group became the first Australian issuer to launch a second syndicated benchmark on Monday. Looking to differentiate itself from dual five year euro debuts from Commonwealth Bank of Australia and National Australia Bank last week, the borrower tapped the crowded long end with a 10-1/2 year jumbo.

A better gauge of the depth of covered bond demand is likely this week, as bank arrangers test appetite for slightly more challenged credits. Of the four deals currently in the market, three are not considered the best or easiest names to sell — not that that should necessarily be a problem — provided the spread is right.

Despite being the most expensive UK covered bond in sterling, Barclays Bank’s inaugural benchmark which priced on Thursday, met with a resoundingly strong reception – boding well for follow on deals from RBS, other UK issuers and possible other European names too.

French top tier borrowers have issued nearly €5bn of 10 year paper in three days, meeting demand from insurers and asset managers on the hunt for generous yields. The bonds in the secondary market have all held in, but the ten year maturity may not be such an automatic choice now for other French issuers that follow next week.