Germany

A triumphant first Grüner Pfandbrief has snapped the covered bond market out of its recent decline, bringing new buyers to a product that many investors abandoned this year as the European Central Bank’s purchases crowded them out, writes Bill Thornhill.

Until recently, green covered bonds were always more of a theoretical discussion than one that had taken root. But on Monday, the asset class took a giant leap forward as Berlin Hyp issued its €500m seven year Grüner Pfandbrief, a transaction that was placed with many new types of investor. The deal could be just what the central bank-oppressed market needs.

Berlin Hyp on Monday reaped the rewards of its extensive roadshow and attracted the highest oversubscription of any German covered bond issued this year at the tightest spread for the tenor. The astonishing result was achieved with the help of Green and SRI investors that bought 48% of deal. The transaction sends a strong signal to other covered bond borrowers that Green covered bonds diversify funding, suggesting they have a bright future.

Berlin Hypothekenbank is readying the market’s first Green Pfandbrief and is likely to launch the bond on Monday or Tuesday next week. Analysts expect there to be a minimal spread difference between the borrower’s green and conventional curves.

The mortgage cover pool backing Aareal Bank’s Pfandbriefe is expected to grow by roughly a fifth following its integration with the assets originated by Corealcredit, according to Commerzbank research analysts. The German exposure will rise, as will the proportion of residential loans.

Deutsche Pfandbriefbank (pbb), the German Pfandbriefe issuer that will be privatised this year, said it expects to make a first quarter profit of €45m, even after writing down 50% of its exposure to Heta Asset Resolution.

Covered bond supply surged this week with investors piling into deals that offered little new issue concession and negative spreads, leading to concern that an inflection point was at hand. However, there was no sign of investor pushback, with the tightest deals from core European issuers experiencing a high level of demand. But some bankers were left wondering just how long the superb conditions would last.

The European Commission is taking steps to encourage future deals in the new asset class. It published the findings of a report on Wednesday and recommends standardising the regulatory framework.

National Bank of Canada (NBC) priced the first 144a three year dollar benchmark since July 2013 on Monday. The lack of comparable deals meant there was an element of discovery in pricing, which was almost excessively defensive. BayernLB was set to price a three year Reg S public sector dollar benchmark.

La Banque Postale printed its first soft bullet euro covered bond, paying a 0bp-1bp new issue premium for its market return, and Helaba doubled the size of its 1.875% 2023s to €1bn with a tap on Tuesday.

Deutsche Hypo returned to covered bonds for its annual benchmark on Monday, building a heavily oversubscribed book for its €500m seven year mortgage Pfandbrief in a record 10 minutes.

Two European banks announced covered bond mandates on Monday – La Banque Postale in euros and BayernLB in dollars.