Euro

The covered bond market is primed for supply, with syndicate bankers expecting several trades this week and at least one announcement to hit screens this Monday afternoon. Though mandates are otherwise scarce, the range of products and currencies available to issuers means they can afford to launch at short notice, and keep their options open.

Moody’s provided a timely reminder that all is not right in the state of Spain on Monday. Following a 41% year-on-year decline in mortgage lending, over-collateralisation levels have eroded, it said. The news came against a background of Cédulas selling as concerns mounted for the country’s banking sector, with non-performing loans soaring and house price falls accelerating.

Investors are fed up with focusing too much on the strength of issuing banks to value covered bonds. Now they are demanding more details about the underlying assets. But baring all is not necessarily the solution for borrowers either.

HSH Nordbank made a strong return to covered bonds on Thursday, drawing such strong demand — over 100 accounts participated in the €500m no-grow trade — that leads closed books after only 35 minutes.

Standard and Poor’s brutal six notch downgrade of the Depfa ACS public sector backed covered bonds, from double A to triple B, matches the severity of downgrades that have been seen in several Spanish multi-Cédulas deals. But unlike those deals, this deal was issued by the Irish entity of a German parent bank.

Dollar issuance continued its record breaking run on Tuesday, as UBS launched its second benchmark of 2012 in that currency. Sterling and dollars have had record first quarters, though euro supply remains subdued.

Covered bond spreads stabilised on Monday and bids have gingerly returned after last week’s sell-off. Turnover has been relatively low but spreads in core markets have renewed their tightening trend – though peripheral markets are lagging. In the primary market, the newly restructured HSH Nordbank is on the road until Wednesday and may thereafter decide to bring a €500m Pfandbrief, subject to market conditions.

WL Bank priced its first deal since May last year and the first 10 year Pfandbrief of the year. Despite coming at a tight spread, relative to other covered bond sectors, it sold out within an hour and was heavily oversubscribed.

Chilean banks could soon be able to issue a new type of “covered bond style” mortgage bond under a proposed framework from the country’s central bank and financial regulator. The bonds would be similar to covered bonds, according to a consultation paper jointly published by the two institutions. However, the new instrument would lack key features such as ring-fencing and dual recourse, The Cover understands.

Nationwide spurned the euro market again and instead turned to the US and UK for its first RMBS deal of the year. Taking account of the two year longer maturity, the funding level was tighter compared to its recent sterling covered bond and illustrated the US market’s greater familiarity with ABS in general and UK deals in particular.

Portugal’s Caixa Geral de Depósitos (CGD) bought €908m of its own covered bonds, representing 29% of the outstanding. This is the second highest take up of a covered bond tender and well above the level that the borrower had aimed for. Millennium BCP’s tender, due next week should have an equally strong result.

Top tier names can offer zero premiums on primary trades but lower ranked issuers have no such luxury, syndicate officials told The Cover on Monday.