Euro

Landesbank Hessen-Thueringen Girozentrale (Helaba) returned to the euro covered bond market on Tuesday for its second deal of the year, as Royal Bank of Canada was set to issue the second deal from a Canadian bank in dollars this year. Bank dealers reported more mixed flows in the secondary market compared to last week but sentiment is still positive.

Intesa SanPaolo has captured the strong improvement in peripheral market sentiment with its €1.25bn seven year covered bond issued on Friday which attracted the highest order book of the year. At the same time Sparebanken Sør Boligkreditt has mandated leads for its debut covered bond.

The European Central Bank’s latest raft of stimulus is likely to restrict market-based short term funding and could lower covered bond supply at the short end. But covered bonds are likely to remain the most efficient tool for term funding, said bankers, two of whom confirmed they had heavy pipelines.

National Australia Bank has issued the second dollar-denominated Australian covered bond of the year, and the fourth covered bond in dollars this year.

Van Lanschot Bankiers mandated leads for a roadshow with a view to issuing a euro denominated conditional pass through benchmark.

Eurobank has issued its first covered bond in the private market after recently updating its prospectus. With two other major Greek banks having conducted similar exercises, the road to their rehabilitation in the capital market has become more established, despite rating downgrades.

The first negative yielding covered bond, which was issued on Tuesday by Berlin Hyp, was almost an inevitability. But given the psychological resistance and reputational risk involved in selling such a deal, the outcome was by no means a foregone conclusion. The deal's resounding success should mean more will now follow.

Berlin Hyp (BHH) issued the first negative yielding fixed rate euro covered bond on Tuesday, days before the European Central Bank is expected to lower the discount rate into even more negative territory.

BBVA returned to the covered bond market for its first deal since November 2015, pricing a well oversubscribed €1.25bn seven year with barely any new issue concession and a long way through the Kingdom of Spain’s spread. The transaction followed one from Toronto Dominion, which on Monday became the first Canadian bank to issue in the US dollar covered bond market this year.

After over a month with no French supply, Caffil and Compagnie de Financement Foncier returned to the primary market on Monday, respectively launching a tap and a new benchmark which both met with a strong reception.

Berlin Hyp (BHH) has mandated leads for a three year covered bond that could be the first to have a negative yield.

After losing its Moody’s rating in November 2015, KA Finanz’s covered bonds received a new AA- rating from Standard & Poor’s last Friday and were indicated about 5bp tighter on Monday morning. The bonds are now likely to receive better regulatory treatment, though collateral transparency could be a problem, said research analysts at Commerzbank on Monday.