Euro

Kutxabank has mandated leads for Spain’s first social covered bond which is expected to be priced next week. This will be the third covered bond with assets that have an environmental or social remit and the second year.

LBBW has issued the third 10 year German covered bond in just over a week, and the first €1bn sized deal from the country since July. Though the public sector-backed transaction was only marginally oversubscribed, demand was driven by high quality German insurers, who requested and got full allocations. Kreissparkasse Koeln has also opened books for a four year Pfandbrief.

A trio of covered bond issuers offered seven year deals on Monday with Banca Popolare di Milano, Société Générale and Lloyds selling deals from a variety of jurisdictions. While each deal printed with appropriate premiums, the high level of supply has meant that investors were more discerning, resulting in slower bookbuilds.

Société Générale offered its first covered bond since February into a busy market on Monday. As a core bank and from a core eurozone country, the trade offers the highest quality of the three seven year deals in the market on Monday and the tightest spread. The issuer was, however, forced to offer a 7bp concession in order to price over French government bonds.

The German Finance Ministry and BaFin, the local regulator, are working on a draft amendment to the Bausparkassen Act that will enable these credit institutions to issue German covered bonds, said LBBW’s research team in a note to clients on Friday.

The covered bond market showed its value this week as it enabled a wide range of banks to borrow in choppy conditions, across a range of tenors. But spreads are artificially tight and the sooner the market can normalise, the better. The ECB’s announcement that it can now buy up to 33% of each public sector bond in its QE programme, from 25% previously — suggests it now has the flexibility to taper covered bond buying.

The covered bond market is likely to remain active over the first two days of next week with more than a handful of deals on the table, but activity will then tail-off as participants head for the Euromoney/ECBC conference and The Cover Awards in Barcelona. Excluding German issuers, the intermediate part of the curve is still favoured over the long end.

Caja Rural De Castilla-La Mancha, UniCredit Italy and Banca Popolare di Milano named leads for prospective euro covered bond benchmarks. The two Italian deals are likely to emerge next week but the Spanish deal will not follow until after a roadshow.

The brisk pace of euro covered bond supply, which has amounted to €11.5bn since the end of August, is expected to slow next week as participants head to Barcelona for the annual Euromoney conference and The Cover awards. However, as the market is open, deals will emerge soon afterwards, which will probably include new names and new programmes from existing names.

Bayerische Landesbank (BayernLB) issued the third 10 year covered bond of the week on Thursday precisely matching Commerzbank in size and spread. With the European Central Bank expected to maintain an accommodative bias at this afternoon’s press conference and global deflationary forces back in play, duration could be back in vogue.

Activity in the covered bond primary market continued at a brisk pace on Wednesday as RBC, DG Hyp, Caffil and Erste Bank priced transactions, taking the deal count this week to 10. Despite mixed receptions, issuers have been able to raise over €7bn, with over €3bn issued on Wednesday, and at levels that look attractive compared to senior unsecured financials.

The European Banking Authority said it has been asked by the European Commission to conduct further analysis on the Net Stable Funding Requirement (NSFR) and Leverage Ratio. The European Covered Bond Council had previously stated the NSFR proposal was unhelpful to the covered bond industry.