Euro

The preferential regulatory treatment that UK covered bonds currently enjoy could deteriorate if the United Kingdom votes to leave the European Union in this June’s referendum, said Allen & Overy. Deals issued this week suggest the market has already priced Brexit risk in.

Royal Bank of Canada demonstrated the health of the primary covered bond market on Friday when it priced a €1.5bn deal that offered a minimal new issue concession. And with only one week to go before the European Central Bank’s policy meeting, other issuers will be keen to join apoBank, which mandated leads for a deal.

Belgian issuer KBC returned to the covered bond market for the first time since April last year with a six and a half year soft bullet Pandbrieven. The €1.25bn deal generated the largest book size seen in recent memory in what was described as a ‘phenomenal’ investor response.

UniCredit’s German subsidiary HypoVereinsbank (HVB) landed its biggest benchmark deal in almost five years on Tuesday, with a six year mortgage Pfandbrief.

Covered bond euro benchmarks issued by banks in the euro area do not fulfil the quantitative requirements of the liquidity coverage ratio, according to new research by Barclays analysts.

The refinancing auctions of Danish non-callable covered bonds for the April term began on Friday, where demand for three and five year non-callable bonds is expected to be strong, said analysts at Danske Bank.

The Canadian rating agency has published a request for comment following a newly proposed rating methodology that introduces a new and higher rating gauge for systemically important banks called the Critical Obligations Rating (COR) criteria and which could lead to a covered bond rating upgrade at 11 banks.

Hypo Tirol was never expected to be an easy trade given lingering concerns about Austria’s smaller banks and the aftermath of the Heta Asset Resolution debacle. So it was a relief when, on Thursday, the issuer managed to attract an oversubscribed and relatively well distributed order book for its €500m five year mortgage-backed covered bond.

Swedbank was set to issue a €1.25bn five year covered bond on Wednesday. The deal attracted more investors than any other covered bond this year, and a larger volume of orders. The new issue concession was small, but the deal’s success was driven by a yield nearly 0.5% more than OBLs

It is no coincidence that Tuesday’s €1bn covered bond from BPCE attracted more investors for a French seven year deal than at any time in the last year. The European Central Bank has started to scale back its purchases. The issuer also made

European Union Commissioner Jonathan Hill embraced price differentiation and product diversity in covered bonds on Monday. The speech was widely welcomed by practitioners who fear that the ambitious approach to harmonisation advocated by the European Central Bank would be disruptive, unworkable and unnecessary.

BPCE issued a €1bn seven year mortgage-backed covered bond attracting an exceptional level of subscription from a broad range of real money investors. The transaction, along with earlier deals from AIB and CaixaBank, shows that the seven year tenor is now firmly back in vogue, offering the right trade-off between duration and yield.