Germany

LBBW returned to the covered bond market on Monday to issue a €500m 15 month deal from a €550m book. The exceptionally short dated funding was driven by asset liability matching needs and provided cheaper funding than the issuer could have found in the money markets.

Bayerishe Landesbank’s covered bonds were unaffected on Friday by news on the wind down of Austria’s Hypo Alpe-Adria (HAA), which it partially owns. However, other Austrian covered bonds widened a few basis points after Austria’s finance Michael Spindelegger warned that unsecured bondholders might need to share in the bank’s losses.

Covered bond spreads are so tight that there is almost no scope for secondary performance, bankers have warned. “Core markets are in a zone of low oxygen,” one said on Tuesday, as KBC Bank priced a €750m five year deal, having mandated Deutsche Bank, DZ Bank, ING, KBC and UniCredit as joint lead managers on Monday.

Eika Boligkreditt, formerly Terra Boligkreditt, has named leads for a deal roadshow and Deutsche Kreditbank has named lead for a euro benchmark, while two more covered bond deals could yet be mandated later on Monday for issuance on Tuesday.

Landesbank Hessen-Thüringen (Helaba) opened books for a public sector Pfandbrief due February 2019 on Monday, having announced the mandate last Friday. At €1bn, the deal was twice the size of any other German deal issued this year. It was priced with a generous, though not unusual, new issue premium but attracted the highest oversubscription for a Pfandbrief this year.

Norddeutsche Landesbank Girozentrale issued its second Flugzeug Pfandbrief at much tighter levels than its first deal. But in the face of competing agency demand and less performance potential, it was unable to attract anything like the scale of demand of its first deal.

WL Bank was set to price the shortest fixed rate euro denominated covered bond of the year on Tuesday, at the tightest spread of any transaction since November 2012. Bankers off the deal were surprised that any investor would pay such a tight price, while those on the deal said the cheap funding was a reflection of the issuer’s high quality.

Deutsche Pfandbriefbank (Pbb) issued 2014’s second Pfandbrief deal on Tuesday but despite a highly supportive technical backdrop, a generous new issue premium and small deal size, it was unable to muster a convincing level of demand. The anaemic reception was due to the odd choice of an eight year tenor, said bankers, but it also raised concerns over supply indigestion.

Aareal Bank and UniCredit Bank Austria priced successful euro deals in five and 10 year maturities on Monday, while Abbey issued a three year in sterling. All three priced at the tighter end of initial thoughts. However, prospective core borrowers with larger funding needs may need to offer more tempting spreads as the market softened on Monday.

Bracingly tight spreads for outstanding Pfandbriefe from top tier issuers meant the book build for Landesbank Hessen-Thueringen’s (Helaba) €750m four year bond was quite slow on Tuesday, even after it offered a concession to secondary levels.

Commerzbank has returned for its fourth covered bond deal of the year, and the second off its new mortgage platform. It announced the €500m no grow deal on Monday, ahead of Abbey National Treasury Services launching its own deal (see other story).

Norddeutsche Landesbank priced its second US dollar covered bond benchmark this week, attracting a multiple oversubscription from a diversified range of high quality global investors. Though expensive, the funding showed the borrower’s commitment to building its US curve and establishing solid name recognition which will help it efficiently match-fund its dollar assets.