Covered Bonds

News earlier this week that the German regulator, Bafin, had sent out a draft letter regarding the treatment of structured covered bonds, has added to concerns that certain structures may see renewed selling pressure. But for some investors this may herald an investment opportunity.

Germany’s Eurohypo had the primary market to itself today, launching a Eu1.25bn five year mortgage backed Pfandbrief at 40bp over mid swaps, the middle of guidance. The deal is expected to price this afternoon via leads Commerzbank, Barclays Capital, BNP Paribas, UniCredit and UBS.

JP Morgan’s ABS outlook for the year says that the regulatory preference for covered bonds at the expense of securitisation has never been more prominent, and predicts that ABS will still play second fiddle to covered bonds as the preferred secured funding route.

Fitch today (Tuesday) placed mortgage covered bonds issued by Caja de Ahorros y Monte de Piedad de Navarra on review for possible downgrade.

Dexia Kommunal Bank sold a Eu1b five year benchmark yesterday (Monday), which leads BayernLB, DZ Bank, Deka Bank, Deutsche Bank, Dexia, HSBC and UniCredit priced at 35bp over mid swaps, the middle of guidance.

After the flurry of four deals that priced yesterday afternoon (See separate comments), the market has gone into radio silence.

CM CIC yesterday priced the first French covered bond to extend beyond the well populated 10-year part of the curve, issuing a Eu1bn 12-year. The 4.125% due 16 January 2023 was jointly led by Barclays Capital, Deutsche Bank and HSBC.

The pricing of LBBW’s three year public sector Pfandbrief yesterday was probably one of the easiest trades of this year. Along with a handful of other German issuers, it is about as far up towards the rates spectrum for covered bonds as any issuer can get.

The primary covered bond market continues to power ahead with four transactions currently being marketed. LBBW, Dexia Kommunalbank, NordLB and CM CIC are in the market with three, five, 10 and 12-year covered bonds respectively.

Rabobank and Royal Bank of Scotland will take Delta Lloyd’s Arena 2011-1 RMBS on the road this week, in what could be the first European RMBS of 2011.