Euro

Abbey National returned to the euro covered bond market for the first time this year on Thursday, following the same dual tranche format that Nationwide and Helaba have successfully established. Though UK bonds are unlikely to be eligible for the European Central Bank’s forthcoming purchase programme, both tranches priced with a negligible new issue premium with well oversubscribed and granular demand.

Hypo Noe has mandated leads for its inaugural mortgage backed Pfandbrief, to be launched next week.

Bank of Nova Scotia was set to price the tightest and longest Canadian covered bond issued in euros on Wednesday. It was also the tightest spread for any non-German seven year seen this year, and at €1.5bn the largest in that tenor.

Credit Suisse mandated leads for a euro benchmark on Wednesday. After roadshowing earlier this week, Santander UK’s subsidiary Abbey has held back from the market following the tragic news that the banking group’s executive chairman passed away on Tuesday.

Aareal Bank capitalised on the momentum created by the two successful French deals issued through mid-swaps on Monday and Tuesday by bringing forward plans to issue a euro-denominated covered bond, opening books on a three year deal on Wednesday rather than waiting until next week.

The covered bond market passed another milestone this week with core transactions attracting book sizes that were reminiscent of the yieldy peripheral deals seen a year ago, but at spreads well through swaps. With supply likely to slow after September, the European Central Bank ready to absorb a large portion of whatever is subsequently issued and sovereign yields expected to head further into negative territory, the technical squeeze will become much tighter.

The frenzy of demand for Compagnie de Financement Foncier’s (CFF) five year deal on Tuesday demonstrated that the market’s psychological resistance to sub-Euribor pricing has well and truly crumbled.

The European Central Bank surprised ABS bankers and infuriated many of their covered bond peers on Thursday by committing to a broad purchase programme for both asset classes. The move was welcomed in the ABS market and sparked a fresh hunt for secondary paper, but deprived of more detail bankers were unable to say how quickly the measures would encourage more primary issuance, if at all.

A few draft restrictions related to the eligibility of European covered bonds in the liquidity coverage ratio (LCR) have been dropped by the EC suggesting the final wording, due at the end of September, will be supportive for covered bonds. In contrast, covered bonds have been left out in the final wording of US LCR regulations, in line with expectations.

ECB has announced another covered bond purchase programme starting in October 2014. The move was dismissed by bankers who said it made limited sense.

German banks and their covered bonds are unlikely to be affected by volatility in house prices according to a report published by Standard & Poor's on Wednesday. A 20% decline in prices would barely change the amount of collateral needed to get a top rating.

Deutsche Pfandbriefbank (PBB) reopened the covered bond primary market with a storm on Tuesday, printing one of the most oversubscribed German deals this year. The book featured a high proportion of international demand for a Pfandbrief, and one of the highest levels of central bank participation on record for a German deal.