Euro

Excellent funding conditions drew more covered bond issuers from core Europe to the market this week, with impressive deals done at aggressive spread levels. But bankers cautioned that new issue premiums may have to rise with juicy spreads from peripheral Europe drawing investors’ gaze.

KBC Bank was on Thursday morning set to price its second-ever covered bond, following Belfius Bank out to the 10 year maturity but with a larger €750m deal that priced just inside its Belgian rival.

The primary market picked up momentum on Thursday with three benchmark deals and one benchmark sized tap being syndicated. ANZ, Bankinter, KBC and Compagnie de Financement Foncier (CFF) unearthed a over €3bn of demand.

Deutsche Pfandbriefbank (Pbb) was back in more familiar territory on Wednesday as it launched its first Pfandbrief of 2013, having been busy setting up a new senior unsecured curve in recent months.

Terra BoligKreditt became the second Norwegian issuer to supply the market this year and the fifth overall to come with a 10 year or longer maturity. The long maturity, despite being more expensive than a five year, will build its curve and should attract new investors.

Deutsche Genossenschafts-Hypothekenbank was in the Pfandbrief market for the first time in more than six years on Tuesday, selling a €500m seven year that followed other German deals this month in hugging the mid-swaps level.

Belgium's Belfius Bank took advantage of a strong market on Monday to launch its second ever deal. Even though the transaction looks set to be priced through both Belgian and French government bonds, there was little price sensitivity in the book.

Banco Santander’s first covered bond for nearly a year, a €2bn five year, surprised the market by hitting the middle part of the curve on Monday. The spread did not change from initial price thoughts to final terms, which showed the plan had been to take a large chunk out of the market, bankers told The Cover.

Deutsche Genossenschafts-Hypothekenbank has hired banks for a mortgage Pfandbrief, which is pencilled in for Tuesday. It may have company from Commerzbank, which The Cover understands is also eyeing Tuesday for Europe’s first ever SME structured covered bond.

A covered bond that offers identical credit quality to any other but which is immune from rating volatility should prove a boon to both investors and issuers. A pass-through structure would achieve just that, and NIBC’s decision to explore it should be applauded.

Deutsche Hypothekenbank was set to price a €500m five year mortgage backed Pfandbrief early on Tuesday afternoon from an order book of close to €600m. The deal was modestly oversubscribed, compared with Aareal Bank’s five year on Monday, but it was an improvement on Deutsche Hypo’s previous outing last September.

Aareal Bank has issued the first Pfandbrief of the year, attracting a comfortably oversubscribed book and pricing flat to its curve. Despite the appetite for high yielding risk, the deal showed that there is still plenty of appetite for core covered bonds, ­even if they are backed a high proportion of commercial loans from outside Germany.