Germany

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.

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.