Euro

Bankia bought back a much higher than expected €1.2bn of its covered bonds in a liability management exercise this week, paying a decent premium. Meanwhile Spanish covered bonds are performing strongly, after investors received over €5bn of Cédulas redemptions on Thursday.

The Irish sovereign’s successful 10 year benchmark has paved the way for the country’s covered bond issuers to push out their curves and take advantage of investors’ thirst for yield, said syndicate bankers on Thursday.

Stadshypotek’s jumbo transaction this week offers several lessons for the market and provides a clear indication of investor sentiment, as well as potential pitfalls on strategy and spread that core issuers would do well to avoid.

CaixaBank launched its first euro benchmark covered bond in over year on Tuesday, pricing a five year transaction well inside the sovereign curve. A limited spread concession relative to its better-rated peers put some investors off, but many more leapt at a deal offering yield and a spread with the potential for performance.

Sweden’s Stadshypotek ended a long absence from the euro covered bond market on Tuesday morning, approaching investors with a single digit spread for a new 5.25 year deal. But competing supply from other issuers and asset classes with more attractive starting spreads slowed demand, and the borrower was forced to revise guidance sharply upwards.

Italian covered bonds have traded steadily following Fitch’s downgrade of Italy late last week. Despite the sovereign downgrade, Fitch affirmed the AAA rating for the Pfandbriefe of UniCredit’s German subsidiary on Monday.

Deutsche Pfandbriefbank (Pbb) got the covered bond market off to a strong start on Monday, shrugging off weakening sentiment to launch a seven year mortgage backed Pfandbrief.

HSH Nordbank became the second German borrower of the year to fund SME loans with a covered bond this week, after using a KfW guarantee to turn the loans into eligible public sector collateral. As German Pfandbrief law bars unguaranteed SME loans, this approach offers an alternative to structured issuance. But bankers and analysts are divided over its viability.

Caisse de Refinancement de l'Habitat (CRH) executed a lighting fast long six year covered bond early on Thursday morning, to avoid any potential volatility from the European Central Bank meeting on the same day. But the deal was also CRH’s smallest benchmark print in years, indicating a much reduced need for secured funding across France’s banking system.

Spanish Cédulas are in demand, following the outperformance of the Bono over the last week. However, this flies in the face of fundamental credit risks, which Moody’s has warned are very high.

HSH Nordbank closed books on a three year public sector Pfandbrief on Wednesday, easily finding enough demand for a €500m no grow transaction, despite its exposure to the shipping industry, which put some buyers off, said bankers.

Overcollateralisation has a big influence on the ratings of covered bond but it is not a good guide to their resilience and rating stability, according to DZ Bank.