Euro

National Australia Bank has returned to the euro market with a covered bond that is twice as long as its previous euro financing but at less than half the cost. Despite that, initial guidance was cheap relative to its peers. Yet the swell of demand it has attracted should ensure the final print is tighter.

Redemptions are set to rise by 58% from €99bn in 2012 to around €160bn in 2013 but January may still not be very busy, bankers told The Cover. However, with core issuers able to fund more cheaply in the market than via the ECB, and peripheral issuers under pressure to do deals, supply expectations may be too pessimistic.

In hindsight, KBC’s first covered bond could have been priced inside its final spread of 30bp over mid-swaps. But the deal was still a great outcome for KBC, taking advantage of a buoyant market — that has probably not seen its last deal this year.

KBC Bank chopped a quarter of the spread off its inaugural covered bond in less than an hour on Monday morning after collecting over €5bn of orders equally quickly. The deal was set to be priced in the afternoon at 30bp over mid-swaps, 15bp inside where Belfius Bank brought the first Belgian covered bond earlier this month.

Six UK banks drew £4.36bn between them from the Funding for Lending Scheme, the Bank of England revealed on Monday. Some of the biggest borrowers have also cut lending, according to data released by the BoE. This suggests that net covered bond issuance from UK banks will be negative in 2013, despite higher redemptions due next year than in 2012.

Issuers looking for rehabilitation in the capital markets and wanting to wean themselves off central bank funding must be careful to ensure they issue strategic deals that have a high chance of performing. This should lower their long term cost of funding and enable greater market access.

The European Central Bank aims to tighten repo eligibility for covered bonds and has announced a set of rule amendments. Despite some confusion in the interpretation of these changes, the move may reflect a growing concern that covered bonds have overtaken ABS in the ECB's collateral framework.

Allied Irish Bank (AIB) has priced its first covered bond since the crisis. Vocal investors, who had demanded a wider spread were compelled to cave in to blistering demand and, rather than cut their orders, they were forced to inflate them.

Raiffeisenbank a.s., the Czech subsidiary of Raiffeisen Group which took advantage of a change in legislation to launch a €5bn covered bond programme, hopes for ECB elligibility.

After three senior euro bond issues this year, BBVA this week chose to extend the duration of its liabilities with the issuance of its first covered bond of the year. At 100bp through the sovereign, BBVA was the first Spanish bank to borrow significantly cheaper than the government. However, at €2bn the deal size was too large and led to a dismal secondary market performance.

The coupon on Münchener Hypothekenbank's two year Pfandbrief priced on Monday was just 0.125%, confirming investor perception of the issuer as a “surrogate” for German government bonds, deputy head of treasury Claudia Bärdges-Koch told The Cover.

Münchener Hypothekenbank was set to price one of the tightest ever Pfandbriefe on Monday after it fixed the spread on its €500m deal at 20bp through mid-swaps.