Euro

National Australia Bank issued its first euro benchmark covered bond of the year, and by choosing a maturity that would offer investors a relatively attractive yield, the issuer ensured a strong reception.

The covered bond market continued to perform on Wednesday, but the shortage of paper has led to a deterioration in liquidity, and this is starting to outweigh the positive sentiment that had been driven by an improvement in relative value. The supply situation is not expected to improve much until late next week, when the German carnival season is over and Pfandbriefe could emerge.

NAB has mandated joint leads for the second euro denominated Australian covered bond of the year. A long dated transaction is envisaged and books are expected to open on Thursday.

Compagnie de Financement Foncier (CFF) priced the tightest and lowest yielding euro benchmark covered bond from a non-German issuer on Tuesday. The strong result is a testimony to the return of relative value and shows that, despite the historically low absolute yield, investors are desperate for covered bonds which are structurally under-supplied, but for which there is a durable regulatory bid.

The Swedish regulator’s proposal to lower the covered bond swap counterparty rating threshold to single A from double A is credit positive, said Moody’s on Monday. Though at odds with overall European covered bond rules in the Capital Requirements Regulation and Directive, the proposal would allow banks to continue receive preferential regulatory treatment on their covered bond investments.

The public sector French covered bond issuer, Caisse Française de Financement Local, announced on Friday that by the second quarter 2015 it will be able to add export loan collateral guaranteed by the French credit agency, Coface, to its covered bond collateral pool.

Standard and Poor’s has completed the review of Spanish mortgage covered bonds following a change in its methodology, leading to a number of upgrades. Analysts said the agency’s rating process was complex and not easy to understand.

Investors were eager to buy Vorarlberger Landes-Und Hypothekenbank’s mortgage-backed Pfandbrief on Wednesday. The deal’s success suggests few were worried about the issuer’s Swiss franc exposure, possibly because the income of many obligors is also in Swiss francs.

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.