Germany

After mandating leads for a roadshow at the end of March, Berlin Hypothekenbank (BHH) opened books on Monday for what bankers believe could be the one and only covered bond issue of the week. Though the deal had been widely anticipated, bankers said Ukrainian headline risk could have derailed timing.

With redemptions set to exceed issuance for a year or two longer, Pfandbrief spreads are expected to remain tight. But as regulatory uncertainty dissipates, both mortgage and public sector backed supply should begin to take off again. Could this be the start of a new era for this, the most revered and established of all covered bond sectors?

The European Commission (EC) may come to a compromise solution in regard to how covered bonds are classified in the liquidity coverage requirement (LCR). Banks may be able to invest up to 70% of their liquidity buffers in covered bonds, up from a maximum of 40% in current proposals, said DZ Bank research.

Hypovereinsbank followed Bayerische Landesbank (BayernLB) on Wednesday with a similarly sized deal of the same tenor. But with a marginally lower rating, and hence a wider spread, it was able to attract an incrementally larger book.

Bayerische Landesbank returned to the covered bond market on Tuesday with a 10 year €500m public sector Pfandbrief, the longest dated issue from Germany this year and highest yielding for its Triple A rating. Despite the borrower’s problems with its Hungarian subsidiary, legal troubles in Austria and the repayment of state aid, the transaction enjoyed a stellar response. It attracted one of the highest oversubscription levels for a German deal, which was testimony to the strength of the Pfandbrief brand and the quality of the issuer’s cover pool.

Berlin Hypothekenbank AG mandated joint leads on Monday for a euro Pfandbrief and a roadshow to explain its forthcoming ownership structure, in which it will be directly owned by the savings banks and become an affiliate of Landesbank Berlin rather than its subsidiary.

The bastion of the covered bond market is imposing greater transparency requirements on issuers, but the greater immediate challenge for banks is smooth deal execution in a stiflingly tight spread environment.

Commerzbank has decided not to pursue with a second deal of its SME covered bond programme. The issuer’s faster than expected pace of deleveraging has freed up more liquidity than it expected.

Deutsche Pfandbriefbank (Pbb) returned to the covered bond market on Tuesday to issue a €500m five year benchmark. The book attracted over €1.1bn of demand, a stronger performance than the disappointing eight year benchmark that it priced in January.

Deutsche Pfandbriefbank (Pbb) mandated Dekabank, DZ Bank, Natixis, NordLB and UniCredit on Monday to lead manage a €500m five year mortgage backed Pfandbrief.

The quality of Pfandbriefe is improving, according to Moody’s. Foreign exposure in German public sector Pfandbriefe has decreased by 3.1% over the last five years and foreign exposure in mortgage pools fell 2.4% over the past two years.

Last week Hypo Real Estate Holding said it would sell the Dublin based Depfa plc by June. However market participants do not think that will happen, if the tight prices of the defunct bank’s covered bonds are anything to go by. But the market is wrong to think Germany won’t sell up.