Euro

The covered bond world descended on Canary Wharf for the IMN annual covered bond conference this week, for discussions on the credit (or is it rates?) product that still delivers a meaningful amount of FIG funding.

Swedbank and HSBC both issued €1bn euro-denominated seven year covered bonds on Wednesday. The slim pricing differential between the two transactions neatly illustrated that covered bonds not eligible for the European Central Bank’s purchasing programme have caught up with those that are.

The Finnish issuer has mandated leads for a roadshow that starts on March 16.

The European Central Bank bought more than €50bn of covered bonds in the first four months its third covered bond purchase programme (CBPP3). It now owns over 13% of the benchmark CBPP3 eligible market and could end up owning nearly 40% by September 2016.

Caja Rural de Navarra issued a €500m seven year mortgage backed Cédulas on Tuesday at almost half the spread level achieved by Intesa San Paolo in January. The strong outcome underscored the impression that spread tightening momentum for smaller peripheral covered bond issuers has continued undiminished.

Swedbank is expected to open books for a benchmark seven year covered bond on Wednesday having mandated joint leads BNP Paribas, Danske Bank, LBBW, Swedbank and UBS on Tuesday.

The Austrian Financial Markets Authority (FMA) said on Sunday that it will proceed with a resolution of Heta Asset Resolution AG (HAR), the state-owned wind down company responsible for disposing of the non-performing assets of Hypo Alpe Adria (HAA). The process is expected to provide the first practical test of the covered bond market’s exemption from bail in said analysts at Deutsche Bank.

The Spanish issuer has mandated Banco Cooperativo Español (no-books), BBVA, Crédit Agricole CIB, DZ Bank and HSBC as joint-lead managers for a euro-denominated mortgage-backed Cédulas. The seven year deal is expected to launched on Tuesday and will be rated A1 by Moody's.

While there is no immediate impact on Aareal Bank's Pfandbrief ratings following its planned acquisition of Westdeutsche Immobilienbank (WestImmo), the rating could change if the pools were merged, said Fitch on Thursday. However, analysts say a merged pool could be better quality and note that the covered bond ratings are well protected.

NORD/LB Covered Finance Bank is expected to open books for its inaugural five year €500m Lettres de Gage Publiques on Monday after mandating leads on Friday. Bankers expect a less busy week ahead, but believe there is scope for one or two other deals to be announced at short notice. Market conditions remain strong and recent issuance, such as UniCredit’s conditional pass through, have all performed.

Six European covered bond borrowers launched deals worth a total €5bn this week and, despite setting new spread records, all were easily digested and performed well. Cumulative demand stood at nearly €10bn spread across 500 investor orders. But those deals that offered the most attractive spread attracted the most granular books.

UniCredit issued its inaugural conditional pass through covered bond on Thursday and despite the new structure, the final spread was flat to where it would have priced a deal from its soft bullet programme. The head of group strategic funding emphasised the deal’s rating stability as the key attribute and not its collateral efficiency.