Covered Bonds

Sovereign risk remains the biggest challenge for the covered bond market but most investors plan to increase or maintain their holdings over the next 12 months.

Tesco Personal Finance is taking orders for its first senior unsecured deal — a long seven year bond marketed to retail investors and tradable on the London Stock Exchange’s retail bond platform.

Rabobank’s tap of a 2025 bond on Monday responded to investor demand at the long end, as well as offering competitive pricing for the borrower, a funding official told EuroWeek. But the off the run maturity, combined with some lines issues from accounts, meant the reopening stayed at a conservative Eu500m.

Deutsche Postbank became the second German issuer, after Nord LB, to price a 10-year Pfandbrief this year. However, in contrast to that deal, it did not have to compete for space which, along with a host of other factors, meant it was very easily digested.

Demand for peripheral bonds continues to outpace supply as access to senior unsecured remains poor, and yields to the underlying sovereign are attractive. La Caixa rapidly built books on Thursday for a five year set to price shortly.

The covered bond market is hoping a national champion will soon bring the first Portuguese deal of the year, following the sovereign’s successful bond auction on Tuesday. Elsewhere, Spain’s La Caixa mandated banks for its deal and LBBW is in the market with a dollar benchmark. Meanwhile, the pricing of two German deals on Tuesday went as smoothly as anticipated.

Kommunalkredit Austria priced the second Austrian covered bond of the year on Tuesday — its first in over three years.

The effect of impending regulation on covered bonds was a central theme of the 5th LLBW European Covered Bond Forum, in Mainz, Germany, last Friday.

The primary market has picked up, with two deals emerging and one pricing. Demand is robust and there is good scope for further issuance, say bankers. Deutsche Postbank opened and closed books on Tuesday morning for a Eu1bn mortgage backed 10-year Pfandbrief while Kommunalkredit Austria looked set to price a Eu500m five year later in the day.

With primary market conditions still buoyant, banks which have already issued benchmark covered bonds this year could be back for more, say bankers. One mooted UBI Banca as a possible name, though he said this was more “thinking aloud” than a genuine lead. Meanwhile the long end, and specifically French covered bonds, were still suffering from a dearth of supply on Tuesday, causing a slow secondary market.