Covered Bonds

The recent French issuer flood into the buoyant Swiss franc covered bond sector accelerated further this week as Caisse de Refinancement de l’Habitat launched the market’s biggest deal in over a year — a more than doubled Sfr625m two tranche issue. Together, Monday’s Sfr350m 10 year tranche and Sfr275m five year rank as Switzerland’s largest covered bond since Canadian Imperial Bank of Commerce’s Sfr675m trade in 2009.

After what has been a relatively busy week for covered bonds, the primary market has come to a standstill as market participants look to the week ahead in anticipation of what might be in store. Secondary market traders continue to see a strong interest in peripheral European bonds, which was to some extent reflected by the successful Bankinter and Banca Popolare Di Milano taps on Wednesday, along with the warm reception Banca Carige encountered for its Eu500m benchmark on Thursday.

The love German banks have for Scandinavian covered bond supply was again illustrated this week in the pricing of Danske Bank’s Eu1bn five year trade and Swedbank’s Eu1.5bn three year deal.

The recent French issuer flood into the buoyant Swiss franc covered bond sector accelerated further this week as Caisse de Refinancement de l’Habitat launched the market’s biggest deal in over a year — a more than doubled Sfr625m two tranche issue. Together, Monday’s Sfr350m 10 year tranche and Sfr275m five year rank as Switzerland’s largest covered bond since Canadian Imperial Bank of Commerce’s Sfr675m trade in 2009.

After Spain’s Bankinter successfully tapped the market this week, Banca Popolare di Milano followed with a Eu250m tap of its 3.25% November 2015 through joint leads Banca Akros, SG and UBS. The tap was marketed at mid-swaps plus 160bp-170bp and was priced at plus 165bp, taking the deal size to a new total of Eu1bn.

In what is likely to be viewed as a further positive legal development for the French covered bond market, the decree for Obligations de Financement à l’Habitat was published in the Journal Officiel earlier this week. The new law will have the benefit of being Ucits-compliant, said bankers, and should emerge at the beginning of April.

Seven covered bond borrowers from five jurisdictions attracted a collective demand of Eu11bn this week, raising Eu6.7bn (equivalent) of funding in US dollar and euro denominated benchmarks and taps.

Ravenous US investors look likely to strongly support foreign and domestic covered bonds, judging by their response to a new issue this week from Compagnie de Financement Foncier. The deal came as the US Treasury laid the ground for legislation to bring the product to its domestic capital market.

The love German banks have for Scandinavian issuance was illustrated this week in the pricing of Danske Bank’s Eu1bn five year and Swedbank’s Eu1.5bn three year. Despite relatively tight pricing, compared to what’s on offer in the rest of Europe, Germany led demand for both deals, accounting for a little over half of all orders.

After Bankinter and Banca Popolare Di Milano successfully issued taps on Wednesday, Banca Carige will today price an Eu500m deal on the back of Eu1.2bn demand. Given that the order book and deal size could have been heavily increased, lingering doubts over tier two borrowers’ access to the covered bond market should be dispelled.