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Contrasting investor receptions in euro and sterling markets but new issue premiums rise in both
Bankers predict steady flow of covered bonds issuance over coming weeks despite recent spike in activity
The conditions are in place for the return of big-ticket M&A to create a European banking champion that is sorely needed — provided the politics of it don’t get in the way
Data
Observers blame slower bookbuilding on deal-specific factors but others see warning shots for whole market
Covered market provides 'the deepest pocket of demand' among FIG asset classes
Capital deals and a tight Nordic senior print point to what lies ahead for issuers
The single currency stands out as the most attractive funding source while the US dollar market remains open in size
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Aareal Bank mandated leads on Monday for the first new covered bond of 2021. At the same time, market participants have low issuance expectations for the next few days. Even though supply may improve next week, January volumes are expected to be lower than in previous years. -
Covered bond issuance from Europe’s peripheral regions is likely to be anaemic in 2021, as issuers will continue to rely heavily on far cheaper central bank funding. Covered bond spreads are very tight, but the cost of senior unsecured bonds has come down faster, and deposits have grown.
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The European Central Bank’s gross covered bond purchases sustained strong momentum in November which, in conjunction with wavering supply and high redemptions, caused real investors to be squeezed out — a theme that is bound to continue in 2021.
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The three major rating agencies have broadly positive outlooks on the covered bond market next year, but they have underlying concerns about rising unemployment, mortgage payment holidays, sovereign and issuer rating downgrades and Brexit.
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Expected euro denominated covered bond supply from the Nordic region looks promising with Norway likely to prove a particularly bright spot. However, more cost-effective domestic funding in the Swedish market is expected to depress euro volumes there.
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Germany will remain one of biggest covered bond issuance regions, accounting for up to a fifth of European supply next year. The residential real estate market and economy are expected to remain resilient and, along with robust investor protection built into Pfandbriefe, the market is well buttressed — even when it comes to riskier commercial real estate exposures.
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Bond market's leading performers recognised at GlobalCapital's annual awards ceremony
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