Europe

After a four week gestation period, Bankinter priced the first Spanish deal since February 22, and its first funding since January 2011. The transaction was remarkable, not just for its size and pricing, but particularly for its tenor — which at five years, was well beyond the LTRO supported three year point.

DNB Boligkreditt and Leeds Building Society took advantage of very buoyant conditions to launch €2bn 10 year and £250m three year trades respectively. But, with the spread to senior unsecured continuing to tighten, the incentive to issue covered bonds is becoming less clear-cut for higher yielding credits.

Realkredit Danmark began its March auctions on Monday, offering one year bonds in Danish kroner and euros. The borrower is optimistic after strong auction results from other Danish banks in recent weeks, and reported yields of below 1% from its first day of sales.

Spain’s Bankinter launched a long awaited benchmark on Monday, pricing only the fourth euro jumbo in as many weeks. Spreads could widen suddenly if conditions deteriorate, warned analysts, but with supply scarce and curves steep between three to five years, investors will continue to ride the wave of optimism.

Barring a poor outcome from Greece’s private sector initiative, primary supply is poised to pick up, said syndicate bankers, who advised issuers to launch trades while the market remains receptive. Covered bond analysts are lowering their euro benchmark forecasts, however, and investors are concerned about declining issuance.

A Norwegian issuer – believed to be DnB Nor Boligkreditt is considering a 10 year trade, but is struggling to offer an attractive coupon in such a low yield environment, syndicate officials said on Wednesday. Though real money accounts are long cash and eager to put money to work, they may have to move down the credit curve to hit their targets.

The secondary covered bond rally rolls on, grinding spreads tighter and pushing yields to their limit. But foresight and fundamentals have played no part in the lust for peripheral paper. As lucrative as the carry trade has been for banks, when things turn sour investors could find themselves trapped.

The European Commission’s plan to rotate rating agencies should be scrapped, the European Covered Bond Council (ECBC) and European Mortgage Federation (EMF) have strongly recommended.

The global covered bond market continues to look strong, with a trio of issuers collectively raising the equivalent of more than €4.5bn, on the back of more than €9bn in demand across two currencies. But whether the market’s euphoria can hold out until the end of this week, however, remains to be seen as doubts are starting to creep back in with Thursday’s Greek liability management cut off date fast approaching.

Cajamar Caja Rural has become the latest Spanish bank to try to buy back debt, tendering for up to €300m of ABS and covered bonds.

The covered bond market remains extremely well supported, with recent deals all performing well and secondary flows largely one way. Commonwealth Bank of Australia and Toronto-Dominion have mandated for dollar trades. Yorkshire and Coventry Building Societies have left blackout but could turn to sterling. Bankinter has mandated in euros but is biding its time while Cédulas spreads tighten. ING DiBa is expected soon after roadshowing last week.

The Norwegian Covered Bond Council is trail blazing the Covered Bond Investor Council’s transparency initiative with a data template that sets a great example. Not only does it go well beyond the initial wish list, it also provides additional collateral pool information that until now had not been published by Norwegian issuers.