Covered Bonds

Benchmark euro issuance in the covered bond space totalled almost Eu7bn this week, as the market regained some of the fine form it enjoyed in the first quarter of the year. Though the environment for peripheral issuers became more positive towards the end of the week, supply came entirely from a small group of core jurisdictions whose issuers are unaffected by the worsening conditions in Europe’s periphery.

UBS made its first appearance in the covered market for over a year on Thursday. The Swiss borrower priced a three times oversubscribed Eu1bn five year deal, which a syndicate lead said had achieved the tightest pricing in that maturity outside of Pfandbriefe since the collapse of Lehman Brothers in 2007.

Caisse Refinancement de l’Habitat on Wednesday added to this week’s sequence of heavily oversubscribed issues from borrowers in core jurisdictions. The Eu1.25bn trade, which was priced through Barclays Capital, Crédit Agricole, HSBC, Natixis and Société Générale, was the second French long 10 year within a week, but investor demand for core paper is so buoyant that the order was still more than twice covered.

UBS made its first appearance in the covered market for over a year on Thursday. The Swiss borrower will price later today a three times oversubscribed Eu1bn five year deal, which a syndicate lead said had achieved the tightest pricing in that maturity outside of Pfandbriefe, since the collapse of Lehman Brothers.

Scandanvian borrowers have joined their French and German core colleagues to take advantage of a market highly receptive to quality issuance. SpareBank 1 Boligkredit tapped the dollar space on Tuesday, while Nordea Bank Finland priced a well oversubscribed three year euro trade on Thursday. Aktia real estate mortgage bank has mandated banks for a series of investor meetings beginning in early June.

On Wednesday Moody’s has placed a handful of UK covered bonds under review for possible downgrade. The move has everything to do with pressure on ratings of the banks’ senior unsecured debt, which it applied to 14 UK institutions. But researchers say the rationale underpinning the link between ratings pressure on senior debt and covered bonds is flawed and should be reviewed.

After issuing its inaugural £750m seven-year covered bond in April at Gilts plus 153bp, the Yorkshire Building Society (Baa1/A-/A-) is back, this time to raise funding in the prime RMBS market.

Benchmark issuance in the covered market continued for the third straight day on Wednesday, heralding a return to the form of early in the first quarter. Caisse de Refinancement de l’Habitat on Wednesday launched the second French long 10 year within a week, keeping books open for only half an hour for a Eu1.25bn trade.

Dexia Kommunalbank braved a difficult market on Monday to print a Eu1bn 2.75% May 2014 issue. Though not quite as well received as Dexia Municipal Agency’s Obligations Foncières two weeks ago, the benchmark public sector Pfandbrief was priced in line with guidance and enjoyed strong participation from domestic investors.

Two European banks have issued benchmark dollar covered bonds this week, taking advantage of US investor interest in triple-A assets.

Issuance from Italy, the fastest growing euro covered bond segment, has this year already exceed by almost 20% the total amount sold from that jurisdiction in 2010, according to Natixis analysts.

Société Générale priced the second euro Obligations de financement de l’Habitat on Tuesday, at a level 20bp inside of BPCE’s debut OH with the same maturity in early May. Syndicate leads said a strong reception had been predicted following an in-depth roadshow the previous week, though others said the scale of demand for the debut deal had been surprising nonetheless.