Covered Bonds

After a long hiatus from the covered bond market, Deutsche Bank returned on Wednesday with a landmark transaction that was priced tighter than any other long Kutxa (Caja de Ahorros y Monte de Piedad de Gipuzkoa y San Sebastián) on Thursday sold a Eu600m four year cédulas at the tight end of guidance, despite general secondary market weakness for peripheral trades.

UK securitisation issuers were facing up to tougher scrutiny from investors made newly aware of the impact of call risk this week. Royal Bank of Scotland will be the first to test the mood after the Co-operative Bank declined to call three of its Leek deals (see page 27 for the full story), as it began offering the biggest public structured deal this year, a £2bn RMBS, which it aims to place quickly and with minimal marketing. Investors, though, were concerned.

A quartet of 10 year trades was launched this week, with ABN Amro, Crédit Mutuel Arkéa Skandinaviska Enskilda Banken, and Eurohypo all tapping the long end of the curve. While ABN Amro and Crédit Mutuel Arkéa executed successful trades which have since performed well in the secondary market, Germany’s Eurohypo priced just inside Sweden’s SEB on Friday. One syndicate official said the outcome may signal a new chapter for covered bonds.

On March 24 S&P put out a request for comment on proposed changes to its covered bond criteria for assessing counterparty risk. S&P say that without modifications to documents or any other mitigating actions it estimates up to 70%-80% of covered bond ratings could be affected.

After a long absence from the covered bond market, Deutsche Bank returned on Wednesday with a landmark transaction that was priced tighter than any other long dated covered bond deal since the collapse of Lehman Brothers.

Deutsche Hypothenkenbank priced its first Eu1bn print in almost five years and its first public sector backed deal since 2005. Despite rarity appeal, the bond was priced at the wide end of guidance, illustrating price sensitivity among large German accounts.

Amid renewed supply from core covered bond issuers, and ratings pressure on peripheral jurisdictions, Spain’s Kutxa (Caja de Ahorros y Monte de Piedad de Gipuzkoa y San Sebastián) launched its second ever standalone benchmark deal on Thursday.

SEB signalled the beginning of a new chapter for Nordic covered bonds this week when it priced a 10 year Eu1.25bn deal at levels almost identical to those of an established, triple-A Pfandbrief issuer — an impressive first for the Scandinavian region.

Record covered bond issuance almost reached parity with senior unsecured issuance in the first quarter of 2011, a trend that is unlikely to be reversed by demand constraints on the product, said bankers this week. But widening spreads between the products could put the brakes on.

ABN Amro took advantage of the lack of covered bond issuance in the Swiss franc market on Thursday to issue its second Swiss franc covered bond of the year.

Dual 10 year deals were launched on Thursday, with Skandinaviska Enskilda Banken and Eurohypo the latest names to answer demand for long dated paper.

Amid renewed supply from core issuers, and ratings pressure on peripheral jurisdictions, Kutxa (Caja de Ahorros y Monte de Piedad de Gipuzkoa y San Sebastián) launched its second ever standalone benchmark deal on Thursday.