Germany

Five issuers from France, Germany, Ireland, Austria and Italy have joined the covered bond pipeline. And, with the European Central Bank ready to consider further extraordinary liquidity measures, the conducive technical backdrop looks set to remain. Despite this, the longer term supply outlook remains uncertain and overall issuance, which is at the decade’s low, is not about to improve.

The four euro benchmarks that were priced this week are mostly trading slightly tighter in the secondary market, despite being priced with very small new issue premiums. Along with a period of benign macroeconomic news, the negative net supply of euro benchmarks in 2013 has created a particularly supportive backdrop for new issues, according to covered bond bankers.

The resumption of post-summer covered bond supply continued on Thursday, including the first issue out of peripheral Europe. UniCredit’s €1bn seven year was priced at the tight end of guidance, while Belgian bank KBC also tapped the market for a €750m three year that was well received, confirming the window for issuance remains wide open.

Deutsche Pfandbriefbank priced its fourth covered bond of the year, a no grow €500m five year, only 2bp above its outstanding curve on Wednesday, mimicking the tight pricing in Nordea Bank Finland’s five year trade a day earlier.

The quality of Deutsche Pfandbriefbank’s (Pbb) mortgage and public sector cover pools is set to improve at the end of this quarter after a transfer of assets through German wind-up agency FMS Wertmanagement.

Münchener Hypothekenbank priced a €250m tap of its July 2028 on Wednesday with demand driven by reverse enquiry and short positions among dealers. Despite a lacklustre launch, the rarity of the name and this tenor suggested it would always perform well and Wednesday’s tap proved just that.

Berlin-Hannoversche Hypothekenbank sold a €250m long three year Pfandbrief in floating rate format on Monday, in a deal that was largely distributed among the savings bank networks of lead managers Norddeutsche Landesbank and WGZ Bank.

The European covered bond market was well supported on Monday by a combination of technical and fundamental factors. Negative net issuance is set to increase, this week’s Federal Open Market Committee (FOMC) meeting is expected to be supportive and the outcome of this September’s German elections is looking more certain.

Landesbank Hessen-Thueringen (Helaba) seized on concerted demand for five year paper and a solid market opening on Thursday to price a €500m tap of its outstanding 1% June 2018 bond, paying only a few basis points over secondary levels.

Münchener Hypothekenbank opened books with guidance on its €500m July 2028 at 15bp-17bp over mid-swaps on Thursday through BNP Paribas, BayernLB, DZ Bank, LBBW, Nord/LB and WGZ Bank. The fact that the deal was priced at the wide end of guidance, relied on lead orders and was barely sold outside Germany suggested a lacklustre reception.

The primary market sprang back to life on Thursday as two issuers launched benchmarks and a third tapped in benchmark size. But after recent volatility the syndications were not straightforward and there was a lot of price sensitivity in the books. The curious decision to supply at the long end made them even more of a challenge and the fact that two just scraped by, with one being downsized, suggested issuers have been slow to acknowledge the change in market conditions.

German Pfandbriefe have a strong buffer against losses if a borrower defaults, Moody’s said on Monday. Despite a continued rise in German house prices, the German Pfandbrief Act puts a conservative cap on the value of mortgage-backed loan collateral backing covered bonds, the agency said.