Euro

Demand for safe-haven high quality paper played an important role in drawing DNB Boligkreditt to market this week. The borrower sold a successful €1.5bn trade, though it told The Cover it had not intended to launch a deal.

DNB Boligkreditt got the covered bond market off to a flying start on Monday with a €1.5bn seven year benchmark deal. Norwegian peer Terra Boligkreditt has readied its own euro trade and could launch on Tuesday, while two German issuers have mandated for five year mortgage Pfandbriefe.

Cédulas from strong names tightened on news that the EU is to provide the Spanish banking sector with €100bn in financial aid. But though the move is supportive for secondary levels, Spanish banks have limited issuance capacity in the short term. In addition, saddling the sovereign with new debt could lead to ratings pressure, and Cédulas ratings would not survive a sovereign downgrade.

In the absence of primary supply, the Spanish banking sector continued to provide the focus of attention in the covered bond world this week. With Spanish banks facing around €200bn of Cédulas redemptions until the end of 2015, and access to the capital markets firmly closed, noteholders have become increasingly tetchy over their exposure — in contrast to the Irish covered bond market.

The recent run of Pfandbriefe looks set to continue, with at least two more German credits closely monitoring the market. Meanwhile, a rally in OATs combined with an enduring domestic bid mean the first French covered in two months could be only days away, said syndicate bankers.

Volatile markets have clearly helped drive the bid for all German assets — as was most conspicuous when Münchener Hypothekenbank issued its 10 year Pfandbrief this week.

Deutsche Bank delivered the week’s third German Pfandbrief benchmark on Thursday, matching Münchener Hypothekenbank’s record low coupon for a 10 year trade a day earlier. Together with HSH Nordbank’s trade on Wednesday, German credits have sold six euro deals in a row, and the pipeline of potential Pfandbrief is not yet exhausted, said syndicate bankers.

The UK’s Clydesdale Bank has finished a domestic roadshow and could launch an inaugural benchmark mid-week after receiving final investor feedback on Tuesday. Australia’s Suncorp Bank, meanwhile, is expected to announce a formal mandate for its own domestic debut later in the week.

The focus of attention on the secondary covered bond market in the last 48 hours has been firmly on the sovereign market — and France in particular. A 20bp tightening in the 10 year OAT on Thursday and a short lived tightening again on Friday has left French covered bonds looking cheap. But uncertainty is high, bid-offer spreads are wide, clients are sidelined and dealers are looking to pare back inventory.

A phenomenal reception for three Pfandbrief benchmarks this week has raised hopes that fresh German trades will maintain primary momentum next week. Meanwhile, French sovereign and agency paper has tightened strongly in secondary.

Pfanbrief starved German accounts and international buyers fleeing to quality fell upon dual €500m no grow deals from Landesbank Baden-Württemberg (LBBW) and Deutsche Pfandbriefbank (pbb) on Thursday. A collective €3.4bn in orders across the two trades allowed negative and non-existent premiums respectively, with LBBW’s deal boasting the tightest spread for a euro covered bond benchmark in over a year.

Funding officials at French mortgage lender 3CIF have told The Cover they had no choice but to keep investors in the dark regarding the suspension of trading in the firm's debt from Euronext and the Luxembourg stock exchange just over two weeks ago.