Europe

Record covered bond issuance almost reached parity with senior unsecured issuance in the first quarter of 2011, a trend that is unlikely to be reversed by demand constraints on the product, said bankers this week. But widening spreads between the products could put the brakes on.

A quartet of 10 year trades was launched this week, with ABN Amro, Crédit Mutuel Arkéa Skandinaviska Enskilda Banken, and Eurohypo all tapping the long end of the curve. While ABN Amro and Crédit Mutuel Arkéa executed successful trades which have since performed well in the secondary market, Germany’s Eurohypo priced just inside Sweden’s SEB on Friday. One syndicate official said the outcome may signal a new chapter for covered bonds.

Dual 10 year deals were launched on Thursday, with Skandinaviska Enskilda Banken and Eurohypo the latest names to answer demand for long dated paper.

Amid renewed supply from core issuers, and ratings pressure on peripheral jurisdictions, Kutxa (Caja de Ahorros y Monte de Piedad de Gipuzkoa y San Sebastián) launched its second ever standalone benchmark deal on Thursday.

Lloyds TSB Bank convinced 135 accounts to participate in a comfortably oversubscribed Eu1.75bn five year issue on Wednesday, which was priced 5bp inside of guidance. Covered bond traders report, however, that the bonds have widened in the secondary market, with other issues this week also underperforming.

Crédit Mutuel Arkéa priced its second public jumbo covered bond on Wednesday, taking advantage of demand for duration. Although the borrower has only one deal outstanding, it is becoming increasingly well recognised. Investors are likely to have taken comfort from its intention to transfer to the new Sociétes de Financement de l’Habitat framework.

French, UK and German names were active on Wednesday, continuing the shift away from southern jurisdictions. Lloyds launched its second euro deal of the year and Nordea became the latest borrower to tap the dollar market. UniCredit ensured peripheral Europe was represented, mandating for a Eu500m tap of an outstanding 2017 trade.

Taking advantage of scare supply at the long end and a rising yield environment, ABN Amro raised Eu2bn of 10-year funding on Tuesday morning. The transaction was priced well inside guidance on a comfortably oversubscribed book, in which there was little price sensitivity.

The Covered Bond Investor Council is to set down guidelines for issuers to provide information on collateral pool transparency.

Deutsche Hypothenkenbank priced its first Eu1bn print in almost five years and its first public sector backed deal since 2005. Despite rarity appeal, the bond was priced at the wider end of guidance, illustrating price sensitivity among large German accounts.

Deutsche Hypothekenbank Hannover is set to price a public sector backed Pfandbrief this afternoon, following NIBC’s first public deal which was priced at the end of last week. The book build on both northern European deals has been seamless, despite further volatility and credit rating concerns around peripheral Europe.

Covered bond secondary market levels have remained largely unaffected by Moody’s downgrade of 18 Spanish covered bond programmes on March 25, which followed a downgrade of the borrowers’ issuer ratings. Although all the downgraded institutions remain under review, or on negative outlook, market traders said the immediate effect of the cuts has been negligible.