Euro

The widely anticipated public sector-backed Pfandbrief from Dexia Kommunalbank on Tuesday had been expected to go well, given the juicy spread that was likely. But the level of oversubscription was the highest of any German deal this year and even put competing issuance from Portugal into the shade.

Danske Bank’s first covered bond of the year offered an attractive spread relative to its Nordic peers, which made it a relatively straightforward sell. But even so, the final level was just one third of Danske’s differential against Sweden a year ago.

Danske Bank has mandated joint leads for a euro seven year benchmark, which is expected to be priced on Tuesday. The Danish bank had been expected to make a deal announcement some time ago, but decided to hold back after some tightly priced core covered bond deals failed to garner a sizeable book.

Deutsche Pfandbriefbank (Pbb ) reported a 31% pre-tax rise in profit on Monday, boding well for its privatisation — in marked contrast to Depfa plc. Pbb has launched two Pfandbrief deals this year and is likely to return to markets at least once and possibly twice this year, it confirmed to The Cover on Monday. For the time being, however, the covered bond market is expected to trade sideways as participants await news from the European Central Bank.

The ratings of covered bonds programmes could withstand a downgrade of the issuer’s rating by two notches on average, up from one notch in mid-March, said Fitch on Monday. But that analysis follows a Moody’s announcement in which it placed 81 European banks on negative outlook due to “systemic support for unsecured creditors being increasingly at risk” following the implementation of the Bank Recovery and Resolution Directive (BRRD). The upshot is that an improved covered bond rating cushion may prove to have little effect on covered bond ratings as issuer ratings are more likely to be downgraded.

Veneto Banca and Rabobank have mandated leads for RMBS. The deals offer a generous pick up to what investors could expect in covered bonds given their comparably low risk.

The improving quality of the mortgages which back Australian covered bonds means they require less collateral than in the past to sustain a top rating, said Moody’s in a report on Wednesday. The assessment comes a few days after Fitch’s quarterly overview, which showed a sustained increase in investment mortgage lending. — But this higher risk lending is correlated to Australian house price growth which, since the year 2000, has exceeded both Spanish and Irish house price growth, according to data from The Economist.

Royal Bank of Canada could be ready to return to the euro covered bond market for the first time this year after emerging from blackout last week. It is one of only two Canadian borrowers that has not issued a euro benchmark this year, while Danske Bank’s research team believes Canadian issuance is set to pick up.

Bank of Scotland and Lloyds Bank announced a tender for three short-dated covered bond deals denominated in euros and sterling on Tuesday. This will be the borrower’s second liability management exercise in covered bonds undertaken within the past year.

Bankers reported better buying at the long end in peripheral covered bonds on Friday, while core markets were technically well supported. Despite improved signs of stability, the Street is long of inventory in the periphery and less able to absorb selling flows if they re-emerge, particularly at the long end.

Spread widening in periphery covered bonds are a correction rather than a trend reversal, said Commerzbank’s research team this week.

Sovereign bond market volatility continued to buffet markets on Thursday and, after the slew of FIG issuance in the last week, there was a degree of supply indigestion. But covered bond bankers did not think there was much to be read into the lacklustre execution of this week’s German and Australian deals. The two issues were solid trades, but for idiosyncratic reasons lacked the sparkle of earlier deals.