Europe

Germany’s Aareal Bank launched the first Pfandbrief of 2012 on Monday, targeting a no-grow €500m four year transaction. With the deal size fixed, the issuer prioritised pricing, managing to defy bankers’ expectations and price inside guidance of 60bp area — and inside the curves of other second tier German issuers.

Despite being the most expensive UK covered bond in sterling, Barclays Bank’s inaugural benchmark which priced on Thursday, met with a resoundingly strong reception – boding well for follow on deals from RBS, other UK issuers and possible other European names too.

DNB Nor and Lloyds came to market on Wednesday with five year offerings that enjoyed a healthy oversubscription. German investors and bank treasuries drove the trades for the non-eurozone credits, enabling both to price at the tight end of guidance. But in terms of spread, the difference of nearly 120bp showed that the similarities ended there.

Société Générale launched the third French benchmark in as many days on Thursday. The French trio’s reception has been highly positive, with German investors driving the order books.

Though the first day of activity in 2012 brought fewer trades than in 2011, the number of accounts that participated in the deals was up on last year. Almost 400 buyers participated in Tuesday’s salvo, with Germany taking over half of primary allocation.

National Bank of Greece is set to increase its core tier one capital by buying back its only covered bond alongside several tier one notes in a tender operation launched on Tuesday. The exercise is controversial, with some covered bond participants arguing that the modest tender price differential between the two instruments is not justified and that this undermines the intrinsic relative value of the covered bond.

Caisse de Refinancement de l’Habitat was the first covered bond issuer out of the traps on Tuesday, printing a €2bn 10-1/2 year deal that was driven from the outset by yield-hungry German investors.

The covered bond primary market has opened strongly with a trio of top tier names from core jurisdictions collectively raising around €4.5bn on comfortably oversubscribed books. A further seven deals have been mandated for issuance in the near future. This impressive showing is to be expected given liquidity is technically strong. Yet big challenges lie ahead, specifically for peripheral markets — where borrowers remain shut out.

ING was among the first wave of issuers to restart supply on Tuesday, launching the first Dutch benchmark in almost six months.

UBS was the second of three banks to open books on a covered bond in 2012, bringing a five year euro benchmark on Tuesday. The granularity of the book had the issuer caught in two minds over what to do with the size of the deal, but it eventually chose to print €1.5bn.

An official at a Spanish national champion tells The Cover how he expects to fulfil next year’s funding requirement and how his plan compares with this year’s funding. He thinks covered bonds will remain in the liquidity coverage ratio and believes they may even be lifted to level one. Though the RMBS market has not made a comeback, he thinks that it might. Given the more stable secondary performance versus covered bonds, there is a case for it being included in the LCR which could help the market return.

Australia’s big four banks will look to make euro covered bond debuts early in 2012 after two underwhelming forays into the dollar market in November and a privately placed Norwegian krone transaction in early December.