Euro

Deutsche Pfandbriefbank (Pbb) on Monday returned to the covered bond market for the fourth time this year, tapping an outstanding seven year deal. Secondary demand has sent core spreads tighter across the board, and syndicate bankers expect more issuers to take advantage of an exceptionally attractive primary market.

Moody’s said it is concerned that the rising volume of retained covered bonds is allowing issuers to unilaterally relax standards on their programmes. Italian issuers have lowered collateral requirements and delayed the posting of additional collateral through adverse amendments, said the rating agency. Other jurisdictions, such as Spain, that rely heavily on ECB repo funding are also at risk.

A new type of Cédulas backed by export finance loans is being lined up to help ease funding pressures on Spain’s banks. The Spanish government has set out a legal framework for Cédulas de Internacionalización (CI) which should be repo eligible. However, the market is likely to be a small with limited rating de-linkage to the issuer.

Secondary covered bonds spreads are grinding tighter as buyers faced with negative yields in the sovereign market drive short dated covered yields towards zero. While core jurisdictions wallow in a sea of demand, investors are still averse to peripheral paper, but the wide spread gap could cause Spanish and Italian spreads to bounce back, said bankers.

Italian covered bonds face further cuts despite being given a new rating ceiling of A2 by Moody’s. The rating agency has not yet taken its axe to the issuers, and is expected to cut them all by at least one notch, bringing some OBG’s close to the sub-investment grade border.

This week’s first ever Pfandbrief backed by aircraft mortgages has been warmly received. But amid the fanfare for the issuer, NordLB, there are concerns over the security of the assets involved that in turn are stoking debate over what assets should be eligible for covered bond funding.

New Irish insolvency legislation will benefit covered bonds over the long term, according to Moody’s. But as the new law will provide debt forgiveness for mortgage borrowers with unsustainable loans, it could hit Irish cover pools that boast a high percentage of negative equity loans.

Intesa Sanpaolo created two new mortgage backed jumbo covered bonds as part of an exchange offer open to public sector backed bondholders, who also voted to allow the issuer to amend its public sector documentation and make existing rating triggers less stringent.

NordLB launched the first ever aircraft Pfandbrief (Flugzeugpfandbrief) on Tuesday, pricing a twice oversubscribed five year deal at the tight end of guidance.

Bayerische Landesbank (Bayern LB) found strong international demand for its latest 10 year benchmark, which was priced flat to the borrower’s outstanding curve. The €500m trade completed Bayern LB’s 2012 covered bond funding plan, though the issuer’s determination to bring a long dated deal and push for tight pricing limited demand, said syndicate bankers.

Bayerische Landesbank (Bayern LB) launched its first euro benchmark covered bond in over a year on Wednesday, bringing a 10 year public sector backed Pfandbrief originally mandated in July 2011. The trade prioritised pricing over size and received less interest than recent German deals. At the less traditional end of the covered spectrum, Nykredit Realkredit opened books on a tap of a recently issued junior covered bond.

Australia’s Westpac Banking Corp returned to the euro market to launch the jurisdiction’s first seven year covered bond on Monday. But a trio of competing senior unsecured trades contributed to a slow book build, said syndicate bankers, with some also suggesting guidance had been set too tight.