Euro

Harmonising covered bond standards tends to make eyes glaze over. The myriad of different regimes and labyrinth of technicalities involved can seem baffling and trivial. But it would be a mistake to believe the project is an open-ended soft option that will never really happen. Harmonisation will materialise and progress will be monitored, suggesting everyone needs to be up to speed.

Austrian lender Hypo Tyrol issued its first publicly distributed deal on Wednesday, pricing a sub benchmark sized €300m public sector Pfandbrief. The transaction’s smaller than usual size meant it was not eligible for the covered bond indices, which deterred large investors. However, investors were compensated for the less liquid size with a wider than usual spread.

Arnaud-Guilhem Lamy, a portfolio manager within the euro sovereign and aggregate fixed income team at BNP Paribas Investment Partners (AuM: €32.5bn), speaks to The Cover in a podcast interview about how he is adapting his investment strategy in response to the European Central Bank’s (ECB) third covered bond purchase programme (CBPP3).

Several covered bond issuers have been marketing deals and are ready to launch, but they are unlikely to press ahead until next week at the earliest. In the meantime, they will be closely watching markets on Thursday when the European Central Bank governor Mario Draghi is expected to reveal details of the third covered bond purchase programme (CBPP3).

Alexander Froschauer, head of German fixed income Germany at Axa Investment Managers (covered bond AuM: €70-€80bn), speaks to The Cover in a podcast interview about the dual challenge of investment and asset liability management in the current fixed income environment.

Andy Jobst, a senior economist in the European department at the International Monetary Fund, speaks to The Cover in a podcast interview about the future of covered bonds in the European capital markets.

The Swedish Covered Bond Corporation (SBAB) was set to issue a €1bn deal at a historically tight level of 1bp over mid-swaps on a comfortably oversubscribed book on Tuesday. Although the issuer has been out of the market for three years and is considered a solid credit, the deal lacked some of the sparkle of issues seen earlier this month, possibly due to its soft bullet structure.

HSH Nordbank opened books on Tuesday on an Aa3-rated €500m no-grow seven year mortgage-backed Pfandbrief, its second covered bond deal of 2014. Bankers said the level of oversubscription was further evidence of the divergence in popularity between covered bonds likely to be included in the ECB’s third covered bond purchase programme (CBPP3) and those which are likely to be outside, such as Tuesday’s other euro-denominated benchmark, from Swedish Covered Bond Corporation.

HSH Nordbank and the Swedish Covered Bond Corporation (SCBC) mandated leads for euro benchmarks that are likely to be launched on Tuesday.

DNB Boligkreditt returned to the euro covered bond market on Monday to issue its first deal of the year. The transaction looked set to price comfortably through mid-swaps, but it did not enjoy the same degree of price tension as recently issued and highly rated core covered bonds that are likely to be included in the European Central Bank’s third purchase programme (CBPP3).

With 340 delegates, more people than ever attended the European Covered Bond Council’s Plenary meeting, held this year in Hotel Savoyen in Vienna. The welcome remark was delivered by Andy Jobst, a senior economist in the European department at the International Monetary Fund (IMF). He spoke about the role of covered bonds in expanding the European Central Bank’s balance sheet and the need for SME financing through securitizations, which regulated investors are not incentivised to buy.

Jozef Prokes, a portfolio manager within the European fixed income team at BlackRock (AuM: €24bn), speaks to The Cover in a podcast interview about the aims of the European Central Bank’s (ECB) third covered bond purchase programme (CBPP3). Prokes addresses a range of topics including the risks investors face with the globalisation of covered bonds, pass-through structures, SME covered bonds and how his firm is coping with low interest rates.