Germany

Bayerische Landesbank sold its second ever dollar covered bond benchmark on Tuesday, pricing a $500m two year trade that carried one of the lowest ever coupons in the dollar covered bond market.

Bayerische Landesbank opened books on its first benchmark dollar covered bond since 2005 on Monday. It could price the $500m two year trade later on Monday but may leave books open overnight to attract Asian accounts.

Core covered bonds are performing poorly, with low coupons putting investors off, according to Deutsche Bank analysts. Higher yielding peripheral paper could benefit as a result, but the prospect for fresh benchmark trades from southern Europe remains uncertain.

Investors are cash-rich and covered bond spreads look set to remain fairly stable – ideal conditions for covered bond issuance. However, deal flow is set to remain quiet as most issuers are well funded, and those that could do deals are about to enter blackout period.

French and German covered bonds have outperformed sovereign and agency debt from the same countries, and investors would now benefit from switching out of covered bonds, Barclays analysts have advised. But traders countered that a dearth of new issuance is preventing such profit taking, and will help keep core covered bond spreads tight in the short term.

Norddeutsche Landesbank has sold a stand-out debut dollar covered bond, ending Germany’s six year absence from the 144A covered market. The three year deal on Wednesday carried the lowest ever coupon for a covered bond in that currency and is the only outstanding public sector backed trade in the dollar covered market.

Norddeutsche Landesbank could open books on a debut dollar covered bond as early as Tuesday morning, said syndicate leads on Monday. But the outlook for a first sterling trade from Deutsche Pfandbriefbank is more uncertain.

Deutsche Hypothekenbank found demand lacklustre for its seven year mortgage Pfandbrief on Tuesday, with even domestic buyers proving reluctant to participate.

Markit is expected to unveil a new tradable liquid covered bond index in October or November. Though it may not necessarily be actively traded, it should provide a more useful measure than the existing index, as it will help investors to gauge more closely their performance in relation to the most relevant parts of the covered bond market.

Deutsche Hypothekenbank Hannover mandated for its second benchmark covered bond of the year on Monday. The borrower is expected to price the seven year mortgage backed trade on Tuesday, taking the number of deals in that maturity year to date to almost double that of 2011.

Three European borrowers mandated covered bond deals on Monday, taking advantage of what could end up being only a brief funding window in the wake of the European Central Bank’s announcement last week that it would support peripheral sovereign debt markets.

Covered bond issuance is on hold while the European Central Bank’s meeting in Frankfurt commands all attention. ECB president Mario Draghi is expected to provide details of a sovereign bond purchase programme and peripheral sovereign spreads have already tightened in expectation. But analysts said investors fearing a disappointing programme could switch to into covered bonds — with Cédulas the most likely to benefit from such a shift.