Euro

Euro covered bond issuance could be poised to moderate next week, though it is still likely that one or two deals could emerge at short notice. Issuers outside Europe are less inclined to bring euro benchmarks as a change in the basis swap with dollars has reduced the difference in the cost of funding.

German banks have a larger exposure to Heta Asset Resolution — the bad bank of Hypo Alpe Adria — than Austrian banks, said Fitch on Thursday. Despite this, Fitch thinks losses should be manageable. Research from NordLB, also released on Thursday, shows the distribution of this risk across German Pfandbriefe cover pools.

Deutsche Kreditbank closed the spread gap to its higher rated peer, Muenchener Hypothekenbank (Muhyp) on Thursday when it priced a 12 year mortgage Pfandbrief. The ambitious price was justified by the high quality book and comfortable level of oversubscription. Meanwhile Aareal Bank is out with guidance on its first RegS dollar benchmark, which will be priced later today.

Fitch put Duesseldorfer Hypothekenbank’s (DuessHyp) BBB- rating on Watch Negative and downgraded its Viability Rating (VR). The bank urgently needs capital, which should ultimately be available from the German government, said the ratings agency. It may be the latest example of the fallout from the Austrian state of Carinthia’s decision not to honour the guarantee of Heta Asset Resolution's unsecured bonds.

After a three year absence, Bankia returned to the covered bond market in style on Wednesday. With a coupon that’s likely to pay a rare 1%, the issuer was able to attract a high quality, well oversubscribed, diversified book and paid virtually no new issue premium.

Nordea Finland attracted almost equal interest for both tranches of its 5.25 year and 12 year covered bond that was priced with barely any new issue premium on Tuesday. This symmetry to demand defied convention and illustrated strong comfort in the credit which enabled investors to reach for yield with a high degree of confidence.

Deutsche Pfandbriefbank (pbb) and Dexia Kommunalbank are both exposed to bonds which are likely to be written down following the debt moratorium issued by Heta Asset Resolution — the Hypo Alpe Adria bad bank — last week. Several other German covered bond issuers are likely to be affected, said Commerzbank analysts. Austrian issuers are also being hit and have been put on review for downgrade by Moody’s.

Muenchener Hypothekenbank (MuHyp) issued the tightest ever 10 year covered bond on Monday with a book that was built in record time. At €750m the deal was much larger than anything seen in Germany in this tenor for several years. The strong uptake underscores the fact that, despite the extraordinarily tight price and large size, the rare transaction offered compelling relative value.

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.