Euro

BPCE has harnessed the most highly oversubscribed book of the year for its covered bond debut of 2014. The French issuer and Belfius Bank, which both launched deals on Tuesday morning, have benefitted from the sovereign bond market’s rally which has restored relative value in core covered bond markets and brought back demand from triple A rates investors.

HSH Nordbank was set to price its first Pfandbrief backed by ships (Schiffspfandbrief) in five years on Tuesday. The Baa2-rated deal was never likely to appeal to the broad investor base that buys mortgage-backed deals, but with an attractive spread it still managed to get an oversubscribed book.

Vorarlberger Landes-Und Hypothekenbank (Vorhyp) has mandated leads for a sub benchmark sized mortgage Pfandbrief.

Leeds Building Society has priced a £300m three year floating rate covered bond on Monday, as Belfius Bank and BPCE mandated leads respectively for 10 and seven year deals. The primary activity comes as Nordic issuers emerge from blackout, and amid talk that a Swedish 10 year deal could soon surface.

HSH Nordbank returned to the covered bond market on Monday opening books for its first benchmark Schiffspfandbrief in five years. The short maturity, eye-catching spread and heavily overcollateralised pool of low LTV shipping loans suggests the transaction offers compelling value compared to mortgage Pfandbriefe.

Lulled into a false sense of security by the European Central Bank’s quantitative easing programme, investors seem to think they are immune from events in Greece. It’s certainly true that markets are in much better shape than they were when the country was first bailed out in 2010. Investors in AIB Mortgage Bank’s latest deal would probably vouch for that.

The European Commission is set to commence a consultation towards setting up a Capital Markets Union by 2019. The European Covered Bond Council (ECBC) plans a panel discussion on the topic in Brussels in February shortly after the official release of a “Green paper,” a copy of which was leaked to the press earlier this week. A second consultation, specifically alluding to the role of covered bonds is expected in June.

Erste Bank’s first covered bond in three years issued on Thursday was nearly three times subscribed in less than an hour. The rollicking result showed it was unaffected by mounting concerns in the Austrian bank sector generally, and over its peer Raiffeisen Bank in particular.

Core covered bond markets are well supported and, with Bund yields tumbling, they now offer exceptional value to established triple A investors, said dealers on Thursday. Though peripheral covered bonds have so far held in, uncertainty is greater and sentiment is more mixed.

Last week the ECB doubled its weekly covered bond purchasing rate to over €4bn, in line with the surge in primary issuance. Most analysts think the ECB will moderate the rate of covered bond purchases from March, when it will be able expand its balance sheet more rapidly with sovereign purchases, but not everyone is in agreement.

After pulling a 10 year deal last year, AIB Mortgage Bank returned to the market on Tuesday to price a very successful seven year. At the same time its Spanish peer, Bankinter, chose to issue in the same 10 year maturity that foiled AIB last year. Both banks achieved a solid result suggesting better quality peripheral covered bond issuers have not been affected by events in Greece.

Faced with shrinking yields, covered bond investors have been deserting the market. Unless the ECB moves out of the way and switches to sovereign purchases fast, there is a real risk that these buyers will not be there when the extraordinary stimulus measures now being delivered are taken away.