Euro

Deutsche Hypothekenbank, NordLB’s commercial real estate subsidiary, opened books on Monday for its first Pfandbrief of the year. Despite the time of year – this deal is the first German issuer to price a deal in the second half of July for over four years – leads attracted a heavily oversubscribed order book. Credit market conditions in the Euro area provided a constructive backdrop for execution, with Bunds stable and periphery markets recovering.

Toronto Dominion’s first legally compliant covered bond stormed the market on Monday morning, raising €1.75bn – €750m more than any of the other five Canadian euro benchmarks that have been launched this year.

The five year area of the covered bond curve saw solid demand in the secondary market this week, especially for bonds originated from outside the European Economic Area (EEA). The rally was driven by speculation that a recent proposed change to the liquidity coverage ratio (LCR), which would allow banks to count such bonds in their liquidity buffers, could be approved.

The first draft of the Pfandbrief Act 2015 offers some remarkable novelties, according to Commerzbank research, which said in its latest weekly publication that proposed changes should not cause any headaches — and may even improve transparency. Moody’s agreed saying that the draft proposals were credit positive.

Deutsche Hypo has mandated joint leads for a €500m five year mortgage Pfandbrief to be launched in the near future.

Landesbank Hessen-Thueringen (Helaba) sealed its place as the largest covered bond issuer so far this year after doubling the size of a seven year public sector backed Pfandbrief on Thursday. The approach, which mirrors last year’s strategy, has enabled the bank to raise a lot of funding at competitive levels while giving investors much needed liquidity, as well as minimising its asset-liability mismatches.

Toronto Dominion and BNP Paribas should be ready to launch the Canadian bank’s first legally compliant covered bond next week after announcing the prospective deal on Wednesday. The announcement was not a total surprise, given that the bank’s programme had been signed off by the regulator in late June. However it has removed uncertainty over timing, which bankers away from the deal commended.

Around 90 deals have priced so far this year with varying results. The Cover compares these by the depth of demand, the breadth of distribution and pricing both globally and across each region.

The focus of activity in covered bonds was squarely on Banco Espirito Santo on Tuesday morning with bankers reporting that its one outstanding publicly placed covered bond had widened by 25bp from last Friday. In contrast to the bank’s subordinated debt, which risks being completely wiped out, there is a strong expectation its covered bonds will be fully redeemed on time. However, further mark to market pressure is likely. With Portugal on review for an upgrade, the covered bonds of Santander Totta and CGD present value.

German bankers, who have been busy nursing their sore heads after celebrating their country’s World Cup victory on Sunday night, will not have been overly burdened by DG Hypothekenbank’s drive-by Pfandbrief syndication on Monday. Being the rarest issuer from one of the most technically squeezed jurisdictions in Europe, a strong outcome was never in doubt. Painkillers may however be required for the allocation process.

Bankers expect more bad news to come out of Portugal and the correction being seen in peripheral covered bonds may therefore have further to go. But this bad news fundamentally does not change the positive longer term picture for the rest of peripheral Europe. A technical retracement had been long overdue and will provide a rare buying opportunity for real money investors and banks looking to cover their shorts.

Three issuers launched covered bonds this week with varying results, which suggested that the converging trend between core and peripheral Europe has stalled. Banca Monte dei Paschi di Siena (MPS) struggled to attract anything like the demand seen in its previous covered bond as Portuguese woes outweighed the programme’s rating upgrade into investment grade territory.