Europe

Westpac’s inaugural euro denominated trade was a blow-out success, with orders swelled by demand from Germany and from banks. But an unreconciled book of approaching 140 investors from around the world has also made it very granular. Despite this success, and the fact that the funding door remains firmly open for other issuers, the primary outlook may start to slow, bankers believe.

Banesto has become the first Spanish bank this year to move away from three year funding, selling a long four year Cédulas on Tuesday. The no-grow €500m trade attracted enough demand for a jumbo print, but this deal was about sending a signal to the market and investors, and not about meeting long-term funding requirements.

The covered bond primary market remains on fire with deals from the UK’s Abbey National in sterling and Spain’s Caixabank in euros, quickly oversubscribed — allowing leads to move guidance towards the tight end without fear of losing orders. But accounts that had driven the short end of the secondary market tighter since the start of the year are now taking profit, or at least losing interest in adding to their positions — hinting that current euphoria may reach its limit before long.

BPCE convinced more than 140 accounts to participate in the first French trade of 2012 not to tap the long end of the curve, with a huge bid from asset managers unable to buy short dated paper providing added granularity. The BPCE group has issued over €3bn so far this year — around 25% of its covered bond funding plan, though it aims to be active throughout the year.

Banco Sabadell’s €1.2bn three year demonstrated that Spain’s second tier of borrowers has regained market access. With many Spanish banks waiting for the rating consequences of new banking groups and mergers, a benchmark gives rating agencies a timely display of credit strength.

For the first time in Denmark, non-affiliated institutions will pool their mortgage loans to issue covered bonds.

Austria’s Bawag has invited holders of its €1bn 4.25% 2014 to tender their notes and is willing to buy up to €500m at a spread of mid-swaps plus 55bp. The offer is unusual for being the first covered bond tender from a borrower in core Europe and the first which targets bonds that trade above par.

BPCE launched the first French five year trade of 2012 on Monday, into a market still desperate for new supply across the curve.

Banco Sabadell brought the first deal in nine months from a second tier Spanish issuer on Monday. Rather than wait for a second round of ECB long-term refinancing operation (LTRO) funding, the borrower opted for a more expensive funding option to show the market and rating agencies that it still has wholesale access.

Coventry Building Society followed Santander into the short end on Friday, launching a three year sterling floater – the fourth sterling deal in this format since the start of 2012.

Spain’s Catalunya Banc and Italy’s Cassa depositi e prestiti (CDP) are the latest issuers to announce tenders, though CDP is winding down its cover pool rather than attempting to bolster capital. A successful exercise for Catalunya could prompt other Spanish issuers to follow suit, though covered bond analysts said investors have been unwilling to let go of Cédulas in the secondary.

In a flurry of activity that offered another glimpse of the spare cash washing around the European banking sector after the ECB’s first Long Term Refinancing Operation (LTRO) in December, Spain’s CatalunyaCaixa and Banco Popular Español launched tender offers this week, buying back ABS, covered bonds and hybrids.