Currencies

The recent run of Pfandbriefe looks set to continue, with at least two more German credits closely monitoring the market. Meanwhile, a rally in OATs combined with an enduring domestic bid mean the first French covered in two months could be only days away, said syndicate bankers.

Volatile markets have clearly helped drive the bid for all German assets — as was most conspicuous when Münchener Hypothekenbank issued its 10 year Pfandbrief this week.

Deutsche Bank delivered the week’s third German Pfandbrief benchmark on Thursday, matching Münchener Hypothekenbank’s record low coupon for a 10 year trade a day earlier. Together with HSH Nordbank’s trade on Wednesday, German credits have sold six euro deals in a row, and the pipeline of potential Pfandbrief is not yet exhausted, said syndicate bankers.

The UK’s Clydesdale Bank has finished a domestic roadshow and could launch an inaugural benchmark mid-week after receiving final investor feedback on Tuesday. Australia’s Suncorp Bank, meanwhile, is expected to announce a formal mandate for its own domestic debut later in the week.

The focus of attention on the secondary covered bond market in the last 48 hours has been firmly on the sovereign market — and France in particular. A 20bp tightening in the 10 year OAT on Thursday and a short lived tightening again on Friday has left French covered bonds looking cheap. But uncertainty is high, bid-offer spreads are wide, clients are sidelined and dealers are looking to pare back inventory.

A phenomenal reception for three Pfandbrief benchmarks this week has raised hopes that fresh German trades will maintain primary momentum next week. Meanwhile, French sovereign and agency paper has tightened strongly in secondary.

Pfanbrief starved German accounts and international buyers fleeing to quality fell upon dual €500m no grow deals from Landesbank Baden-Württemberg (LBBW) and Deutsche Pfandbriefbank (pbb) on Thursday. A collective €3.4bn in orders across the two trades allowed negative and non-existent premiums respectively, with LBBW’s deal boasting the tightest spread for a euro covered bond benchmark in over a year.

Funding officials at French mortgage lender 3CIF have told The Cover they had no choice but to keep investors in the dark regarding the suspension of trading in the firm's debt from Euronext and the Luxembourg stock exchange just over two weeks ago.

Nykredit Realkredit will price a €500m five year junior covered bond at 200bp on Wednesday afternoon. The deal came far closer to senior than covered bond levels, with demand mainly from credit buyers in Nordic regions more familiar with the unusual structure.

The axe of Moody’s has fallen on Cédulas as the agency continues its European wide review on financial institutions. Unlike their Italian peers, many Spanish covered bonds remain double-A rated, and all retain vital access to ECB funding while the primary market becomes ever more elusive.

Finland’s OP Mortgage Bank shrugged off an appalling market backdrop to launch an exceptionally well received €1.25bn deal on Wednesday. Its first covered bond of 2012 provided solid proof of the covered market’s resilience to macro concerns and added weight to syndicate bankers’ arguments that issuers should take advantage of demand overhang.

Borrowers could decide to switch senior projects into covered trades, syndicate bankers told The Cover. This would follow the example Nordea set in April when it turned a planned senior deal into a blow out seven year covered deal.