Euro

The covered bond primary market is likely to experience an increase in activity next week, with a handful of deals expected. Though conditions are broadly constructive and have improved from two weeks ago, the secondary market still looks precarious suggesting issuers that move early will have an advantage.

Fitch will soon release an exposure draft focused on its treatment of foreign exchange (FX) risk in covered bond programmes with open FX positions, along with a number of other proposals that seem positive for covered bond ratings.

NordLB Luxembourg Covered Bond Bank issued a €500m three year Lettres de Gage Publiques on Thursday. The deal offered a 24bp premium to where NordLB Germany trades, and therefore attracted a comfortable level of oversubscription despite its lack of compliance with the capital requirements directive (CRD) covered bond definition and its split rating.

Covered bond ETF outflows are on course to reach their highest level in five years even though spreads are at their most attractive for over a year, according to Markit. However, the spread widening should ultimately attract investors that have been lost over the past year.

Banco Sabadell attracted exceptionally strong demand for its second covered bond of the year. Higher-rated Cédulas have rarely offered a spread over Spain since 2011, but this deal did, which made all the difference.

Skandinaviska Enskilda Banken (SEB) issued a €1bn seven year Swedish covered bond on Monday and attracted enough interest to tighten pricing, something that few issuers were able to do recently. However, even with double the concession DNB paid, the Swedish borrower attracted much less demand than the Norwegian one. SEB’s curve has been marked 2-3bp wider following the deal.

TSB Bank is in the market with Duncan 2015-1, its first UK prime RMBS which is a securitization of legacy assets inherited from Lloyds Bank. Meanwhile Belfius will soon be ready to move ahead with Penates 5 which has a special interest rate cap that replaces the swap and reduces rating agency induced counterparty risk.

Primary covered bond activity is expected to moderate next week with anywhere between four and eight deals possible, following 10 this week. Though spreads are wider now than before the covered bond purchase programme (CBPP3) was announced, investors are not taking advantage of the bargains on offer because liquidity is so poor.

The London branch of the Japanese firm has put two bankers ‘at risk,’ one of whom had been actively involved in emerging markets, covered bonds and SSA syndicate.

A senior FIG syndicate banker has quit BNP Paribas to move to Danske Bank in Copenhagen.

The European Commission (EC) has published a report in which it agrees with the recommendations of the European Banking Authority (EBA) that the preferential risk weight of qualifying covered bonds is appropriate. It also opens up the possibility of extending preferential treatment to dual recourse bonds backed by SME collateral, or European Secured Notes.

The Norwegian covered bond borrower issued its second deal of the year on Wednesday. Though the final spread was on the generous side, and the book only just covered, the overall cost of funding was less than half what it paid in March.