Euro

The supply outlook for covered bonds issued by well rated borrowers in Europe’s core and issues outside the eurozone is constructive, particularly in the defensive three to five year area, bankers told The Cover on Monday. However, with demand for peripheral supply less assured, the supply outlook for all but the very best names is set to remain challenging.

South Korea’s Kookmin Bank has selected four banks to run a potential return to the covered bond market, but a source at the issuer said that due to unfavourable market conditions, there’s a possibility that the deal will not materialise.

Virgin Money's prime UK RMBS Gosforth Funding 2016-1 was priced on Friday and attracted strong demand across all three currencies on offer. Further RMBS supply is expected from UK and Dutch issuers.

Portugal equalled its largest ever benchmark size with a visit to the 10 year part of the curve on Thursday, taking the week’s overall sovereign euro issuance to a record high.

The covered bond primary market was quiet on Thursday as weak credit market conditions prevailed, and with this year’s supply double the amount seen in the same period last year, indigestion has weighed on spreads. Though it is still early days, banks with this year’s largest market shares are quite distinct from those of 2015.

Raiffeisen-Landesbank Steiermark and Bayerische Landesbank issued Austrian and German Pfandbrief, respectively, on Wednesday. The fact that the Austrian deal was only just oversubscribed and the German deal was placed only with domestic investors reflected the pernicious influence of the covered bond purchase programme (CBPP3).

Spanish banks are becoming less reliant on the covered bond market, said Fitch, and as a consequence their balance sheets are becoming less encumbered.

Deutsche Bank SA, Kookmin Bank, BayernLB and RLB Steiermark have mandated leads for covered bonds to be issued on Wednesday.

Erste Bank issued the first Austrian Pfandbrief of the year, attracting a comfortably oversubscribed book and setting a strong start for issuers from the beleaguered country. At the same time, Deutsche Pfandbriefbank issued a tightly priced and larger than expected German Pfandbrief.

Deutsche Pfandbriefbank and Erste bank have mandated joint leads for euro denominated covered bond benchmarks to be launched on Tuesday.

Lloyds and Société Générale both returned to the covered bond market to issue their first euro-denominated benchmarks of the year on Monday. The UK bank issued in much larger size with an order book that grew far more quickly than the book for SG’s deal.

All but one of the primary euro denominated covered bonds issued this year, whether they can be bought by the ECB or not, have widened after issue.