Euro

Bank of Nova Scotia’s inaugural legislative covered bond is unlikely to offer much room for performance, and isn’t eligible for bank liquidity buffers. At 10bp, the spread is broadly in line with expectations and offers genuine diversification in a hungry market. But at 9bp its secondary market performance is less assured.

Commerzbank has decided not to pursue with a second deal of its SME covered bond programme. The issuer’s faster than expected pace of deleveraging has freed up more liquidity than it expected.

There was never much doubt that Banco Santander Totta’s first deal since the bailout of the Portuguese government would be a success. The choice of maturity and alluring spread made it an easy choice for the risk-averse and yield hungry. Totta’s first funding in four years attracted one of the largest oversubscriptions and most granular books for a deal of its size.

South Korea and Singapore will extend the covered bond market’s global reach this year, with deals from both countries expected in the first half. Korea, having enacted a covered bond law, seems to offer greater potential for issuance than Singapore.

Covered bonds are finishing the week tighter with demand spurred after Bunds softened, allowing investors to hit absolute yield targets. Traders reported investors looking to extend maturities, though selective sales of long-dated Norwegian bonds have raised speculation of primary activity next week. Core to peripheral convergence is still broadly evident especially in Ireland, but signs of fatigue have become evident in long dated multi-Cédulas and selective short-dated single name Cédulas.

DBRS published a comment on Thursday comparing conditional pass-through covered bonds with securitizations. Investors in conditional pass-through structures must monitor the underlying assets, cash flows and extension risk more carefully than those investing in bullet maturity structures. Investors must therefore be more skilled in credit analysis.

This week’s suite of covered bond deals have performed well and underscore that the market is receptive. AIB Mortgage Bank’s transaction was clearly the star of the show with its bond trading 10bp inside reoffer and its whole curve 3bp to 4bp tighter on Thursday paying little heed to bearish overnight comments from the Federal Reserve’s chair, Janet Yellen.

Swedish lenders should set a 70% loan to value cap for interest only mortgages and loans higher than that should be on a repayment plan, the Swedish Bankers’ Association said on Wednesday. Investors welcomed the news but said it would have a marginal effect. The Riskbank's governor, Stefan Ingves, said on Wednesday that mortgage risk weights should rise.

AIB Mortgage Bank enjoyed a stellar response for its first covered bond this year. The deal attracted the most demand for any Irish covered bond since the Irish government’s bail-out of its banks.

National Bank of Canada extended its euro curve by two years and priced its second euro covered bond, a €1bn seven year benchmark, on Tuesday. It looked cheap versus its previous deal, but fair value to where other Canadian transactions were trading on Tuesday.

AIB Mortgage Bank has mandated leads for a seven year covered bond to be launched on Wednesday, subject to market conditions. Meanwhile, Aktia Bank has picked leads for a covered bond roadshow starting next week.

Deutsche Pfandbriefbank (Pbb) returned to the covered bond market on Tuesday to issue a €500m five year benchmark. The book attracted over €1.1bn of demand, a stronger performance than the disappointing eight year benchmark that it priced in January.