Covered Bonds

Crédit Agricole on Wednesday completed a Eu1.5bn seven year transaction, its third covered bond this year and its first under the new Obligations a l’Habitat framework. Despite French issuance topping Eu50bn so far in 2011, there are no signs yet of French credit lines being exhausted.

The UK covered bond market is set for a long awaited deal after Clydesdale Bank said it would roadshow its inaugural euro denominated deal from June 6.

DnB NOR Boligkreditt AS on Tuesday priced its increased debut five year A$ covered bond from its newly set up A$4bn programme. Its success bodes well for other international issuers who are also looking to diversify their funding and may be considering entering the Australian market, which will soon have its own covered bond law.

UniCredit’s German entity, HVB, on Tuesday issued its first benchmark Pfandbrief since January. The Eu1bn five year deal benefitted from an enduring safe haven bid and investors’ confidence that, despite its headquarters in a peripheral European country, it remains a German name with the advantages that status bestows.

German issuers, conspicuous by their absence from last week’s core paper jamboree, are back with a bang this week, after Deutsche Kreditbank, owned by Bayerische Landesbank, and UniCredit — came to market on Monday and Tuesday respectively. Domestic buyers did not let the banks down, putting in a solid bid.

The covered bond primary market exploded into life on Tuesday with new developments on as many as eight deals — of which four or even five, are expected to price during the day. The constructive primary market is largely due to an improvement in underlying market sentiment.

Though the covered market was quiet on Friday, market participants can look back on highly successful week in which almost Eu7bn in euro benchmarks was issued. After faltering supply in April UniCredit analysts report that covered bonds are on track for another record month. Issuance thus far in May is almost Eu20bn, less than Eu2bn short of the record total supply for that month.

The South African Reserve Bank has decided “not to allow the use of covered bonds and similar structures by banks in South Africa,” it said on Monday. After deliberation and consultation with South African banks and fund managers, the SARB found the threat of subordination for depositors and unsecured debt holders posed too great a risk. This means South Africa will need to find other ways of meeting Basel III liquidity and net stable funding requirements.

On Thursday, Nordea took advantage of the flight to quality bid, scarcity of short end Scandinavian supply and sizeable bank treasury and central bank interest to launch and price a Eu2bn three year covered bond backed by Finnish prime residential mortgages. Timing and choice of lead played an important role in attracting top quality Asian demand.

Despite an Eu8bn welter of new covered bond issues this week, the product’s vulnerability to negative rating actions — highlighted by a new Moody’s review of eight UK programmes — is heightening the resurgent securitisation market’s attractions for issuers and investors.

Scandinavian borrowers joined their French and German colleagues to take advantage of a market highly receptive to high quality issuance this week. SpareBank 1 Boligkredit tapped the dollar sector on Tuesday (see separate story) and Nordea Bank Finland priced a well oversubscribed three year euro trade on Thursday. Finnish peer Aktia Real Estate Mortgage Bank, meanwhile, mandated banks the same day for a series of investor meetings beginning in early June.