Germany

Of the national central banks which are buying covered bonds as part of the ECB’s covered bond purchase programme, the Bundesbank has been the most active by a large margin, said two covered bond traders. It is said to have accounted for around a quarter of queries in the secondary market from Monday through to 12pm BST on Wednesday.

Covered bond yields fell on Tuesday as Bunds rallied following a larger than expected fall in the ZEW business sentiment index and lower than expected inflation data. The European Central Bank (ECB) could be poised to commence buying on Wednesday after its scheduled meeting. Since the ECB is likely to be targeting the spread to government bonds, Pfandbriefe are likely to be on the bank’s shopping list, as they look more attractive than peripheral bonds versus their government bonds.

Sparkasse KölnBonn opened books on Tuesday on an Aaa-rated €500m no-grow 10 year mortgage backed Pfandbrief, its first deal since April 2013 and the sixth 10 year print to come out of Germany in 2014. Bankers on the deal said they could have pushed the rare name through mid-swaps but opted not to, as the issuer wanted to leave room for secondary market performance.

HSH Nordbank opened books on Tuesday on an Aa3-rated €500m no-grow seven year mortgage-backed Pfandbrief, its second covered bond deal of 2014. Bankers said the level of oversubscription was further evidence of the divergence in popularity between covered bonds likely to be included in the ECB’s third covered bond purchase programme (CBPP3) and those which are likely to be outside, such as Tuesday’s other euro-denominated benchmark, from Swedish Covered Bond Corporation.

HSH Nordbank and the Swedish Covered Bond Corporation (SCBC) mandated leads for euro benchmarks that are likely to be launched on Tuesday.

Commerzbank opened books for a €1bn five year mortgage Pfandbrief on Monday, and was set to issue in line with the spread achieved by Compagnie de Financement Foncier (CFF), which issued a deal of the same tenor two weeks ago. The pricing shows that there is no longer a spread between French and German covered bonds.

Covered bonds backed by environmental and social governance (ESG) mortgage loans are expected to become an important component of the booming socially responsible investment market following a ground-breaking Pfandbrief issued this week by Münchener Hypothekenbank (Muhyp). But bringing trades to market will not be without its challenges.

Münchener Hypothekenbank (Muhyp) has priced the first covered bond backed by environmental and social governance (ESG) mortgage loans. The €300m deal attracted a rich new seam of demand from investors that had never bought covered bonds from this issuer, in a move that is expected to spur other borrowers to consider ESG covered bond deals of their own.

Westfälische Landschaft Bodenkreditbank (WL Bank) opened books on Thursday on an AAA rated €600m no-grow 10 year mortgage-backed Pfandbrief, its second deal of the year and the fifth 10 year print to come out of Germany in 2014. In contrast to Aareal Bank’s deal on Wednesday WL’s order book was oversubscribed many times.

Aareal Bank capitalised on the momentum created by the two successful French deals issued through mid-swaps on Monday and Tuesday by bringing forward plans to issue a euro-denominated covered bond, opening books on a three year deal on Wednesday rather than waiting until next week.

Jens Tolckmitt, chief executive of the Association of German Pfandbrief Banks (vdp) speaks to The Cover about Pfandbrief quality — "striving to be first in class".

German banks and their covered bonds are unlikely to be affected by volatility in house prices according to a report published by Standard & Poor's on Wednesday. A 20% decline in prices would barely change the amount of collateral needed to get a top rating.