Euro

Stadshypotek, the mortgage subsidiary of Svenska Handelsbanken, returned to the market with its first euro denominated covered bond since November 2014. The issuer increased the transaction size and tightened the spread, sending strong signal of confidence to other borrowers considering launching deals before the end of the year.

Deutsche Bank’s subsidiary in Spain successfully issued its first publicly syndicated Cédulas Hipotecarias on Tuesday. The €1bn five year, which attracted a comfortably oversubscribed book, sets a strong foundation for further benchmark supply expected over the next two years.

Deutsche Bank will open books for a five year Cédulas Hipotecarias on Tuesday following last week’s roadshow.

Moody’s has withdrawn the Aa3 covered bond ratings of KA Finanz and downgraded those of KA New to Baa2. KA Finanz, which owns the euro benchmarks, has confirmed it will maintain a consistent overcollateralisation ratio and is seeking another rating from Standard & Poor’s. Despite this uncertainty, analysts expect the bonds owned by KA Finanz to outperform its peers.

The Dutch bank has mandated leads to roadshow its inaugural conditional pass-through covered bond.

HSH Nordbank issued a €500m five year mortgage Pfandbrief on Thursday. Despite offering an attractive new issue premium and a rare Pfandbrief spread over mid-swaps, leads struggled to fill the order book, with the structural upheaval facing the issuer compounding difficult market conditions.

European benchmark issuance is expected to rise in 2016 led by German banks, which have seen double digit growth in mortgage lending this year, say analysts at Commerzbank. The next largest regional supply is expected from issuers in France, then Spain followed by Canada, say analysts at Société Générale.

Deutsche Hypo priced a €500m six year on Wednesday in line with previous German deals, but with a considerably smaller oversubscription ratio than its previous two issues. Bankers were not hopeful the outlook for covered bonds would improve much in the next few months, but took heart from the fact that most investors are obliged to put their money to work.

BBVA returned to the covered bond market for the second time this year on Tuesday, opening books for a long five year. Despite pricing well inside Spanish government Bonos, and even though political instability was causing ructions in neighbouring Portugal, the national champion quickly built an order book unequaled in size in the Cédulas market for nearly four months.

National Bank of Australia issued a €750m seven year covered bond on Monday. The deal didn’t fly off the shelf, even though it offered a substantial premium to other bonds. The lack of ECB repo eligibility and slackening demand in the intermediate part of the curve was blamed.

The secondary market has been busier this week, with real money investors taking advantage of a cheapening in covered bonds relative to government bonds. With the ECB likely to step up purchases in the secondary market and government bonds, the outlook for the remainder of the year should be broadly supportive.

Covered bonds benchmark issuance could grow to as much as €180bn globally next year according to Crédit Agricole research. The main growth is likely to be seen in euro benchmarks where the analysts expect €150bn.