Covered Bonds

Dealers report a strong bid in covered bonds this Wednesday morning, though some selling in the five to 10 year segment was welcomed as it helped cover shorts. Dexia Municipal Agency remains under pressure and with Bonos tightening, cédulas have underperformed, triggering some selling.

Länsförsäkringar Hypotek priced a Eu1bn no grow three year Swedish covered bond and DnB Nor priced a Eu1.5bn 10-year. Both deals benefitted from a safe haven bid ensuring a warm investor response.

After two months with no covered bond supply from peripheral Europe, the last two weeks have seen two benchmark deals that priced tight to where their respective government bonds trade. But that’s where the similarities end. The deals' outcomes could not have been more different.

Germany’s Aareal Bank kicked off covered issuance this week with a triple-A Pfandbrief on Tuesday, while UniCredit mandated banks for a seven year OBG which was launched the same day.

National Australia Bank’s subsidiary, the Bank of New Zealand, has today launched the first Kangaroo covered bond in Australian dollars and the first from New Zealand. The deal comes as rival Australian bank, ANZ, goes on the road in Europe with its inaugural euro denominated covered bond and as Commonwealth Bank of Australia confirms plans to issue A$5bn of covered bonds annually.

BNP Paribas Personal Finance has launched a Dutch RMBS, Phedina 2011-1, its first public cash deal since 2008. The Eu1.5bn standalone transaction will diversify funding but pricing is unlikely to be close to where its recent covered bond deal came.

UniCredit launched the latest deal from the fastest growing euro segment in the covered bond world on Tuesday, a Eu1bn no-grow benchmark which in keeping with other Italian deals this year was highly oversubscribed.

With Clydesdale Bank gearing up for its first issue under a newly established Eu5bn global covered bond programme, Moody’s has given those bonds a timely Aaa (provisional) rating. The credit quality of the cover pool was among the most telling factors behind Moody’s decision. It is also bound to bolster investor interest in the programme.

Moody’s cut covered bonds issued by Dutch issuer NIBC Bank from Aa2 to A1, following a downgrade of the issuer’s senior unsecured rating on June 3.

Moves by the UK’s Independent Commission on Banking to increase protection for UK depositors and taxpayers could have the opposite effect, according to Deutsche Bank research.

Primary and secondary market activity has slowed as participants anxiously await macro-economic developments. Foremost among these are Greece’s debt re-profiling and regional budget news in Spain. Against this background the continuing bid for core assets is expected to remain in place. DNB Nor could be poised to announce and price a deal this week.