Currencies

September 2016 is touted as the earliest possible date for the wind down of both quantitative easing and the Covered Bond Purchase Programme (CBPP3). But with little visibility beyond these bare details, bankers at the European Covered Bond Council Plenary Meeting in Barcelona were divided as to what impact, if any, the wind down will have on the covered bond market.

Cariparma Crédit Agricole printed a €1bn June 2023 mortgage-backed bond on Tuesday. The healthy new issue premium offered by the issuer suggests investors are demanding more of a premium following the glut of supply recently.

Hypo Tirol has named leads for a new benchmark euro-denominated mortgage covered bond. Austrian mortgage-backed bond issuance appears to gathering momentum after a long Heta hangover. However, rival bankers say that lingering concerns about the level of exposure the mortgage banks have to Heta may hamper the deal.

SR-Boligkreditt has mandated leads for a series of investor meetings with a view to issuing its first deal.

Valuations of CBPP3 eligible covered bonds have overshot fundamentals says Pimco’s Kristion Mierau. While his portfolio has grown this year, his firm is navigating away from price dislocations caused by the European Central Bank’s purchase programme.

UniCredit Italy has become the first Italian bank to break the mid swaps barrier, pricing a €500m five year floating rate deal at three month Euribor +7bp, which equated to 3bp through on a mid swaps basis.

Kutxabank has mandated leads for Spain’s first social covered bond which is expected to be priced next week. This will be the third covered bond with assets that have an environmental or social remit and the second year.

LBBW has issued the third 10 year German covered bond in just over a week, and the first €1bn sized deal from the country since July. Though the public sector-backed transaction was only marginally oversubscribed, demand was driven by high quality German insurers, who requested and got full allocations. Kreissparkasse Koeln has also opened books for a four year Pfandbrief.

A trio of covered bond issuers offered seven year deals on Monday with Banca Popolare di Milano, Société Générale and Lloyds selling deals from a variety of jurisdictions. While each deal printed with appropriate premiums, the high level of supply has meant that investors were more discerning, resulting in slower bookbuilds.

Société Générale offered its first covered bond since February into a busy market on Monday. As a core bank and from a core eurozone country, the trade offers the highest quality of the three seven year deals in the market on Monday and the tightest spread. The issuer was, however, forced to offer a 7bp concession in order to price over French government bonds.

The German Finance Ministry and BaFin, the local regulator, are working on a draft amendment to the Bausparkassen Act that will enable these credit institutions to issue German covered bonds, said LBBW’s research team in a note to clients on Friday.

The covered bond market showed its value this week as it enabled a wide range of banks to borrow in choppy conditions, across a range of tenors. But spreads are artificially tight and the sooner the market can normalise, the better. The ECB’s announcement that it can now buy up to 33% of each public sector bond in its QE programme, from 25% previously — suggests it now has the flexibility to taper covered bond buying.